You are probably thinking that I am referring to whether you should keep your property, (i.e. rent it), or get rid of it by selling it. But actually, selling rental properties is an excellent way to generate more income while getting rid of the hassles and expenses associated with landlording and maintenance.
Normally an article of this type would be doing a comparison of whether you should keep the investment property and rent it, or get rid of it by selling it outright. There would be some arbitrary examples that look good on paper but don’t take real life into account.
Instead, after years of dealing with all kinds of situations with rental properties, and given the fundamental fact that today credit is very tight, qualifying for a mortgage is more difficult than ever, and interest rates will likely be rising, it makes real sense to think about selling with owner financing as a strategy to collect more income without the stresses of landlording.
I arrived at this strategy while dealing with a rental property I inherited from a relative who had died. The relative had owned the property for 20 years, and allowed the same tenant to live in it for 20 years without a rent increase. Shortly after my relative died, the tenant also died, leaving me with an empty 1000 Sq. Ft. house that needed everything fixed from the plumbing, to the HVAC, to a new roof.
I faced a choice of trying to sell the property “as-is”, or spend an estimated $15,000 to get everything repaired. Other investors didn’t want it, because it needed so much work. They were looking at $25,000 cash to buy, then another $15,000 to fix it up, plus holding costs. No one wanted to put lots of cash into a house that would rent for less than $400 per month. At that rate, it would take more than 10 years to even start making a profit.
So, I decided to advertise it for sale with owner financing. I put a flyer in the window with the specifics of the payment plan I was offering, asking for 10% down, and I raised the asking price to $29,000. I then installed a lockbox with a door key, and a simple “FSBO” sign in the front yard. It only took two weeks to find a willing buyer who would do all the repairs, and had a $1500 down payment.
We wrote up all the details in the purchase agreement. I gave them a 1-year note, amortized over 15 years, and agreed to extend for an additional 14 years once the discussed repairs were completed. (my attorney advised me on setting up the note) That was in May of 2010. By early 2011, the buyers had added a new roof, and completed all of the other required repairs. We extended the note for 14 more years, and the happy buyers are out of an old 1 bedroom trailer and are now the proud owners of their own home.
If they pay for the entire 15 year term of the note, my little rental house will generate more than $60,000 in net profit and put $1500 in my pocket at closing instead of spending $15,000 for repairs. Renting may make more sense in some cases, as all properties are different and have different situations, but for me, selling is the best way to rent.