NJ tenant - lease option

General Real Estate Investing
1

Hi,

I have a single family in NJ that will be vacant as of 7/01, a 3b/2b on 4 acres with a cottage, 1b/1b (not a legal rental by itself). Taxes and debt service $2400mo., maintenance, 500 mo. One family has been renting it for 3100 and collecting 600 from a family member living in the cottage, the family member would like to stay in the cottage should I rent the main house.

Once they told me they were moving I decided to list for sale and/or rent. It has been listed for sale in the mid 700’s for two and a half months with some interest but no buyer as of yet and it is listed for rent with more activity. I was planning to hold it until spring of 09’ sell and use the equity to invest in multiple regular sfh (In PA).

A tenant has come along with great income (over 300k), high revolving debt and poor credit-550 (balances over 100k and too many revolving accounts?). They are seeking the main house only for 3k and willing to give more up front, sign a longer lease, do a lease option, etc.

Besides this property I have not had any other rentals in NJ.

An attorney in NJ has expressed that in NJ you can not take any more then 1.5 months as security and the first month, you must register the tenancy with the township and notify the tenant in writing within 30 days of the name and address of the bank holding the interest bearing account with the deposited security.

Should any of these items not be just as NJ law states, he says I could have a very difficult time removing the tenant should an issue arrise and a judge would side with the tenant due to not following procedure. Following procedure he feels he can get them out with only losing a month should an issue arrise, not following procedure they could get away with too much. I have not brought up the cottage to him…

For my security;

Should I lower my asking price and see if a buyer comes?

Should I wait for a different tenant?

Do a short term lease option with as much down as I can get?
(land contract)

Rent to them without worry?

Offer to rent to them for 3800 and they can collect from the cottage 600 +200 for utilities?

Break even each month and not rent the cottage?

thnx

2

Hi,

Disclaimer: I don’t know NJ law…

I can’t say what to do about the cottage but it sounds like you’re confusing a security deposit with an option payment. What does NJ law say about option payments? Perhaps you can do a lease/option: Have one contract written to lease the property for 12 or 24 months - no security deposit. Another contract gives the tenant the option to purchase the property anytime during that lease period at a set price. The option payment, which can be more than 1.5 times the monthly rent, is consideration given to you by the tenant to have the right to purchase the property. It is non-refundable. If the tenant exercises the option, the option payment is typically credited towards the purchase of the property.

3

Thank You for replying NCREI.

Once I was notified the current tenant was moving I wanted to sell and use the equity for better cash flowing sfh’s in regular neighborhoods and be more diversified. With the amount of deals out there, these funds would have helped to add a few sfh’s with better cash flow and should a positive wave be on the horizon, 4, 5 or 6 200k homes would be a better ride for these funds.

Being the current state of the market to sell real fast I would have to accept in the high 600’s. This could be fine but I know the right buyer will pay in the high 700’s and this may just need to wait until after the election or after next spring with hopefully better retail confidence. One of the arguments in my mind was weighing the time frame with the potential extra proceeds.

Some of the reasons that prompted me to post besides my own cloudy mind at times that causes me to forget already learned lessons were;

-I was worried about these renters’ credit. To get in the wife offered a possible LO, longer lease…

Amazing between the two with almost 400k in salary, they can not control the debt ratio. I met with them last night and the husband is against a LO now but said he is open to discuss further. They bought in AZ in 05’ had to relocate, sell and lose a good amount.

-Due to the credit I was trying to get more security.

In NJ 1.5 months is the maximum security and should I accept more it could look very unfavorable should I ever be in front of a judge. In other states I have never really thought twice, if I could get 4 or 5 months up front I took it. These people are offering it but I am being advised not to take it. The only other way is to charge more for the monthly rent. They did not like that.

I have verified the incomes, checked the credit, met them and will be moving forward with a lease. I will approach them with an offer of an option again at a later date. So I will have this place for another year and hopefully with all good to come.

-Sometimes outsiders see a clearer picture and can bring forth the best creative solutions.
:rolleyes

Thank You