Rent Credit?

[Rich08 0]

I found a t/b for one of my homes. I was going to give them $350/mo rent credit out of $750 month total rent. I am doing that much because the place just wasn't moving and because the purchase price is on the high end side. I was thinking about offering $400 rent credit if they pay $775 mo rent or $450 rent credit if they pay $800 for rent. Are there any problems with this?

 

Thanks

[mpine 0]

Rich,

 

Sounds like a winner as long as your numbers still get you your option money and your seller their end asking price.

 

Good luck, go get em.

 

Mike

[Rich08 0]

Rich,

 

Sounds like a winner as long as your numbers still get you your option money and your seller their end asking price.

 

Good luck, go get em.

 

Mike

<{POST_SNAPBACK}>

 

 

Actually I am the seller. I own the house with traditional financing.

[mpine 0]

Even better since you will be sure not to screw yourself over for the bigger pay day making promised of "above market price" ;-)

 

Best wishes moving your home... if you need any mortgage advice or assistance I am always a shout out a way... I even assist several clients in making sure their deal zeros out their mortgage so they can attain a new one.

 

Best wishes,

 

Mike

[Adam King (MI) 1]

Rich,

In my opinion, if the numbers work go for it. There are couple of reasons why.

 

Number one: I makes it a good deal for the tenant/buyer and keeps them serious about their interest in the property. But, make sure the payment isn't going to go up once they get financing. They ALWAYS seem to drag their feet because of this.

 

Number two: It can actually make it easier for them to cash out. This is because it opens the doors for more loan options. 85-95% LTV etc.

Regards,

Adam

[Rich08 0]

One concern of mine is when they go to refi at the end of the year will the bank allow that much of a rent credit.

[mpine 0]

Rich,

 

I do refis like this, so as long as you keep track of the checks coming in, all should be good.

 

Never trust the TB to keep track of it themselves. Have a package ready for any lender you are planning to direct them to, and also, do not let them choose the broker, it is your call who they go to so you are sure to cash out.

 

Best wishes,

 

Mike

[Rich08 0]

Rich,

 

I do refis like this, so as long as you keep track of the checks coming in, all should be good.

 

Never trust the TB to keep track of it themselves.  Have a package ready for any lender you are planning to direct them to, and also, do not let them choose the broker, it is your call who they go to so you are sure to cash out.

 

Best wishes,

 

Mike

<{POST_SNAPBACK}>

 

Does this mean I should make copies of the checks coming in? And also do I need to have them write 2 separate checks for rent and rent credit or can they just write 1 with a note in the note section the $350 is for rent and $450 for rent credit? Thanks for all the great info, it has been very helpful.

 

Thanks

[Rich08 0]

I contacted a mortgage broker and he said Fannie Mae guidlines will only all us to apply rent credits that are above the fair market rent value. So if the fair market rent is $700 I could only apply $50 rent credit if I lo it at $750. I know there is an obvious way around this because so many people are doing it. Could anyone tell me the simple answer that I am overlooking.

 

Thanks again.

[Kimberly 0]

I contacted a mortgage broker and he said Fannie Mae guidlines will only all us to apply rent credits that are above the fair market rent value.  So if the fair market rent is $700 I could only apply $50 rent credit if I lo it at $750.  I know there is an obvious way around this because so many people are doing it.  Could anyone tell me the simple answer that I am overlooking.

 

Thanks again.

<{POST_SNAPBACK}>

Rich,

 

You canNOT guarantee the lender will allow Rent Credits to be used as if it was a down payment. What you CAN guarantee is that the Rent Credits will be applied to the Purchase Price of the home. So...if the tenant/buyer has an Option Price of $100,000, and they have Rent Credits of $6,000, they would need $94,000 to purchase the home.

[mpine 0]

Rich,

 

give me a call, I have lenders that will do it as long as you kept your copies of checks or have proof of payment. If not check with your T/B and get copies from them

 

Best wishes,

 

Michael Pine

First Source Financial, USA

(516) 620-7791

[MichaelC 160]

Rich, a few things...

I'm a believer in generous rent credits. When we advertise "50% rent credit!", (or more in some instances), the phone usually rings off the hook. They are a great way to generate interest in your properties. My typical rent credit is, in fact, 50%, and I'm not opposed to 75%, even 100% if the property and situation requires it. For the most part that money is built into the price, so I don't see it as a loss for me.

I do not like to use that sliding scale, for lack of a better expression, that you mention. The rent is what the rent is, and the rent credit is a percentage of that. Keep it simple.

As for lenders and what they will and will not permit regarding these rent credits, that varies from lender to lender. Advise your t/b to shop around for a lender they can work with. (And I would certainly start with fellow member Mike Pine). Fannie Mae is not the way to go if you're looking for rent credits to apply as part of the down payment.

[mpine 0]

Rich,

 

I have even been able to make deals happen with bank statements from the T/B showing outgoing expenses of the same amount each month. Just keep the paperwork in order and make sure the T/B understands this isn't an easy way to get a house, this is an opportunity to improve their credit and get themselves ready to handle a loan.

 

Mike

[Rich08 0]

Thanks for all the great info everyone. It has been very helpful.

[jowaju 0]

This is my first post here, so try not to dangle my flesh in front of the wolves.

I have a question about rent credits. I know you said you almost always give at least 50% rent credit, sometimes 75% or even 100%. What price range are the houses you are doing this on. Appreciation in my area is only 3-4%, so it seems like a 50% rent credit would significantly cut into profitability. Here's a breakdown of a possible scenario I looked into earlier this week:

 

Seller reduced price from $112k to $109k, now it's at $106k. Say I do a sandwich lease option to him for $106k for 2 years, with $700/mo payments. The house will appraise for about $116k (my educated guess). Even at 4% appreciation, that puts me at $120,640 after 1 year. Say my t/b signs for $800/mo with the option to buy at $117,900. $3000 Option Consideration would bring it down to $114,900. $4800 for 50% rent credit will bring it down to $110100. $110100 - $106000 = $4100. Wow, now that I go through that again that looks like quite a deal. Even at 75% rent credit that would put me at $107700, which would still be a $1700 payday at the end. Those number sure looks different than last night when I ran them, sorry for wasting your time. I'll go ahead and leave this post here so I can get some feedback as to whether I am missing something or I seem to have it down. I apologize for my newbie questions, I just started reading about CREI on Sunday afternoon, my head is still reeling with information overload.