Landlords - Advanced techniques

As a landlord myself I know firsthand how frustrating it is to deal with tenants.

Apart from late payments, the incessant complaints made to landlords are really preposterous.

So, what are the options?

Selling the property outright, landlords might want to keep it as a monthly income stream but without the hassle of dealing with tenants. The good news is that there are options that achieve that result, we deal with  these options in the following pages.

if you read about these advanced techniques you will see that we are the ONLY brokerage in Florida that is well-versed in profitable advanced techniques.

These techniques can also be applied by sellers, listing agents, or investors who want to offload a property.

 

Lease option

Also called rent to own, this is a powerful technique to increase profitability.

It consists of two documents: a normal lease and an Option Agreement.

The normal lease should always include 3 months in advance: first, last (legally called advance rent), and deposit (this can be higher than a month's rent).

Why? Because in case of eviction, landlord cannot legally repossess the deposit, that is there to safeguard damages to real property and it does not belong to him, but the advance rent does, it is landlord's money.

The option simply states that the optionor has right of first refusal to buy that property at the end of the lease. Options cost about 10 to 15% percent of purchase price of property or any agreed amount between optionor (tenant) and optionee (landlord).

Options should be made non-refundable and with an expiration date of 30 days after lease terminates, this does not confer any right to tenant to overstay his lease and become a heavily fined holdover tenant, also options should be made to explicitly state that the lease does not confer any equitable interest in the property.

Finally, options have to mention a purchase price but make it contingent on fair market value at the time of purchase, to be stipulated by a licensed appraiser, that is how the seller gets to keep the benefits of appreciation.

An added benefit is that optionors tend to take care of the property more than a normal tenant, since they think they would be able to buy it later on.

An option Agreement obliges the seller to sell but not the buyer to buy, the advantage to the landlord is that renters rarely execute their option, so the property reverts to the landlord who gets to keep the rent and the option, and is free to restart the transaction.

 

Seller financing

Seller financing technically called "purchase money" mortgage is a transaction in which the seller becomes the bank and finances the purchase of the property.

As with any lenders, a seller only should give a loan if there is a satisfactory cash deposit by buyer.

As with any mortgage it involves principal and interest (paid to the seller), taxes and insurance (placed in an escrow account). This is called PITI for short.

We are at present working with Loan Care, a loan servicing company under the umbrella of Fidelity National, they take care of collecting payments and late fees, if any.

Since taxes for the year are not known exactly, the escrow account is an approximation, which may have  a deficiency or a surplus, the loan care company takes care of adjusting the annual premiums and charges accordingly.

Just like with any mortgage the loan can be called and property foreclosed and repossessed in case of default by mortgagor (buyer), or the mortgagee (seller) might accept the deed "in lieu" of foreclosure.

The advantage of this is that sellers are targetting a larger segment of buyers who have less than optimal credit score and cannot qualify for institutional loans, since not many properties are offered with seller financing, sellers can capitalize by setting their price slightly above average of market and charge a higher interest.

Basically, seller sells profitably and gets to keep an income stream from the property, without any risk and with the possibility of recovering the property in case of default.