I’ve read several threads in this forum but our situation is so unique I’m having trouble finding a solution by myself.
Basically my wife and I own her parents’ old home - a small 3 bedroom manufactured home and a couple of acres, with total value of around 50k (35k of land, 15k of the home). The home isn’t currently in a bad shape, constructed at around 1980, and ‘flipped’ by myself and family a few years ago.
After having one nightmare tenant, we now have dream tenants that are never late on rent and even repair and refurbish small things themselves. Rent is $550 per month, and they’re halfway through the lease. We also own the home and land free and clear.
It would be a good situation accept for a few issues. Firstly the home is a long commute from us, and when things do need our presence it’s a hassle to get there. Secondly as a manufactured home we anticipate the home will depreciate in value over time, while the land will probably slightly appreciate. Overall I anticipate the property requiring more time and money over time, and would prefer to cash out and put the money in an investment with less maintenance.
Herein lies our problem. As a manufactured home, I’m told its hard if not impossible to get a mortgage, especially considering those looking to buy a 50k property will likely have poor credit. I began to explore the option of raising the rent and letting the tenants buy the home after x years (aka a rent to own, I think). However a few hours of research have shown me that’s a nightmare here in Texas due to the infamous 1823 house bill.
Ideally we’d like to sell the place, but doubt we would find a buyer. Second best we’d be happy to allow the tenants to pay it out over time, whether that means a seller financed mortgage, or rent to buy situation, or whatever else. The default option is to continue as we are, with a few years of headache followed by either bulldozing the home and paying for a new one to be built, or else sitting on the land in the hope we find a buyer.
Are there any options that I’ve missed? Is rent-to-own in Texas officially dead (even with us owning the property free and clear)? All advice gratefully received.
Rent to Own in the great state of Texas are not dead, despite the wailing of the folks who have probably never read the law. They simply require the correct paperwork, which offers full disclosure to the t/b’s.
Find yourself an experienced real estate attorney, preferably one who is also a real estate investor. He’ll guide you to getting a deal done correctly and within the framework of the law.
Thanks for the reply, I may just do that. Are there any other options to consider I may not know about (ie instead of rent to own, continue renting, and trying to sell outright)?
You might check with a couple of banks. I would say that a 1980 manufactured is probably financable. Better to let the bank carry the mortgage than you.
You could give some buyer’s assistance to your tenant to help them get the down payment that the bank will want.
you may want to look into giving them the home, literally and just financing the property. They may be able to get a mortgage on the land but not sure if it will work if there is any structure on the land. However, after living in TX for many years, I remember something about mfr homes being considered like a trailer as far as financing is considered.
now, if you own the property outright, I do believe that you can finance on a contract for deed or L/O w/o restrictions or need for an AITD.
You may want to consider this. Sell the house to your tenants on a Contract for Deed for $550 per month at 10% interest on a 15 year term. In essence selling the home for $51k.
Under a contract for deed, the occupant buyer pays for all taxes, insurance, utilities, maintenance and repairs. So you just become the bank but still have control of the deed. The deed only transfers once the contract is paid off in full.
When the contract for deed is seasoned with a few payments, sell the property with the built-in contract for deed at a discount so the investor who would be buying it from you in cash can receive, let’s say 16% rate of return.
$550/mo x 12 = $6,600 per year in Net Cash Flow.
$6,600/.16 (for a 16% yield) = $41,250.00 Selling Price to a CASH INVESTOR. This will be a passive investment for the cash investor.
Jool - If I’m reading that right, that’s effectively a rent-to-own again. If not, then that’s definitely something I’d like to consider.
Tony - You make a very, very good point. When we were passed title to the the home we discovered something unexpected. Being a manufactured home, the land and home have Separate titles. In fact for a while, my in-laws were the legal owners of the property, while we were the legal owners of the land. In which case we could sell the tenants the property and land separately to make it easier for them to get financing. Ideally then we’d sell them the property and hold onto the land, which we’d ask for rent on. This would take some thinking though, because we’d have to come up with terms both parties would be happy with - if they decide they can’t afford the rent then they can’t hardly pick up the home and move it from the land, and likewise how do we evict them + property from the land if we find the need?
Tatertot - Is buyers assistance effectively a small cash loan we give the tenants to allow them to enter into a mortgage with the bank?
Its not a rent to own. A land contract (aka contract for deed) is a type of installment sale but the deed does not transfer until all obligations are met specified on the agreement namely giving you the entire agreed purchase price.
You are financing the sale. Therefore, the buyer is now the legal owner and have equitable title. Since you have title to both the land and manufactured home you can do this. The buyer will be responsible for the taxes, insurance and maintenance. They will not be calling you if anything breaks because its now their responsibility.
If there is a default, the legal action to remove them from the property will be similar to an eviction rather than foreclosure so it’s a lot faster. Some states call it an “ejectment”. Now some states once the buyer has made enough payments equaling to 20% of the purchase price, you would have to foreclose.
But if your buyer only puts down $1,000 and pays $550 per month, if you run an amortization schedule 20% won’t happen till after 5 years of payments.
I believe that a manufactured home is considered personal property
whereas a house and land is considered real property. To that end
I don’t think you can get refinanced. Based upon what I read, it sounds
like you have a cashcow here, and if so I would continue to rent
to your dream tenants.
Capital gains is not the name of the game…CASHFLOW is! That
revenue stream feed you for a longtime if you take care of it.
In my experience with habitual renters, they will never buy
and there’s no need in trying to change grown folk. Be glad
that they are happy to stay and pay. After they move out,
reconsider your options.
Is refinancing different to financing then? Because I know at one time at least that you could finance manufactured homes.
I agree that the cash-flow is nice, and that I’d love to hang on to those tenants, but I don’t think this property is a cash-cow. In fact shortly after writing the previous reply I discovered the septic system had stopped working, and although I was able to fix everything myself without cost, it took the best part of two days to fix. Such repairs are occurring slightly more regularly, and while I don’t see the home falling into disrepair too soon, I can see the cons outweighing the pros in the next few years.
We’ve actually come up with a different option we’re adopting while we come up with the long-term strategy. We’re basically offering the current tenants 2% of the value of the house in cash if they are able to find buyers for the house at our desired price. It gives them incentive to continue to keep the home in good shape, it removes the costs/hassle in advertising the home, and most importantly it means we’ll be able to mutually cancel the lease with the agreement of both sides!
I’m calling this question closed, and heartily thank all those that gave suggestions!