Rent Proposal -- Who Wins????

[ijohn]

I’ve been studying real estate investing for almost two years and very interested in wholesaling initially, then buying & holding – I have not done my first deal yet but I know it will be soon!! I’m currently in the market for another home for myself – I need to move soon! I found a home in my neighborhood that I can lease that’s been on the market since March 2007. The homeowner’s selling price is much more than I can afford to pay – asking $275,00 but tax-assessed value is $200,000 – will lease it at $1,550/month. The homeowner lives in California, not motivated to sell, and waiting for market to pick up in Dallas area. There’s nothing about this house that’s outstanding. The home needs upgrades, i.e., granite countertops, top-of-the-line appliances, paint and special wall treatments, light fixtures and a landscaping overhaul, all of which would really add a lot of value to the home and increase its appeal to buyers and get close to what the seller wants.

I would love to propose a lease/purchase but lease/purchases are illegal in Texas. I would like to propose a win-win situation whereby I can live in their home and rent it for approximately $550/month in exchange for me taking care of all interior and exterior maintenance (up to $500), pay utilities, carry $300,000 of renter’s insurance, paint and furnish the house tastefully, oversee landscaping and care for the entire property, allow their current realtor to keep the house on the market and show it while I’m renting. I want to exchange my “sweat equity” and decorating skills for a reduction in rent so I can save up some money for a down payment on a home in a year.

My questions for all you creative gurus and seasoned investors are:

[b]What will be the advantages and disadvantages for the seller/landlord?

What expenses are usually incurred when a homeowner rents out their home?

How can I propose a plan to the homeowner that will increase my opportunity to rent this home for a nominal fee in exchange for the services I outlined above?

How should I present this to the realtor working with me and the listing agent to present to the homeowner?

Should I contact the homeowner/seller directly with my proposal outlining the advantages of renting the home to me at a reduced rental rate in exchange for all the services I will deliver?

What factors should I consider and what verbiage should be included in a Rental Agreement that will protect me?[/b]

I am open to any and all suggestions? Thanks, so much, for your help.

[SChinFChin]

Evaluation of what a win/win is depends on the need of both buyer and seller. You stated your needs, but do you know anything at all about the needs of the seller other than he’s not a motivated seller??

First, does the seller owe anything on the property?? If the seller owns the place free and clear, it’s one thing. What if his monthly payments run $1,700/month?? Can he afford to subsidize the place for $1,200/month??

Second, this is a variation of having tenant’s repair the place for a vastly reduced rent, and the conensus is it’s dicey, because if I was in the seller’s shoes, I have no idea if you’re just another guy with a tall tale, and there is no guarantee that it’ll be a professionally done paint job, landscaping or anything else.

And how’s the rental market, and what’s the market rent?? In a tight rental market, I find that for 10% below, I can have people lining up around the block. Say $1,500 is the market rent there, and the market is neither tight or dead, but somewhere in between. In that case, for a rent of $1,200, I might be able to get folks lining up around the block and make all types of promises to rent the place.

You didn’t say if this is a 3Br/2Ba SFH. In determining the rent of one of my SFH, once, it was low enough, in fact too low, that if was competing with 3BR apartments in the local apartment complexes, and even good 2BR’s in 2 family houses where the tenat has to share a driveway. Here for the same rent, I’m offering a driveway that can park four cars on a corner lot that can accomodate another 6 or more cars out front.

People tell me, “for the same price, instead of having space for one car, I got space for 10”, “for the price of a 2BR, I got a house all to myself”.

So it’s hard to answer you without knowing the rental market in your area.

In my area, where market rents for SFH goes for $2,200 and up, and you offer me, say, one third of market, or $750 rent, to do what you say you’ll do, what I would do is test market the place for $1,500.

And what’s going to happen??

All those people looking at ads for 2BR;s which goes for $1,500 will flock there, take a look and start thinking to themselves “why am I renting a 2BR with one drivieway for $1,500 if this guy is giving me 3BR, plus a den, plus 10 parking spaces??”

So instead of listening to one guy giving me promises, I’ll probaly have 50 people to choose from. Then why choose you if everyone is fighting for the place paying me twice what you’ll be paying me??