Renting Back To The Homeowner

I’ve heard every reason why doing this is okay.

Mark, the homeowner is already there, they will take care of the place, I will just sell the home back to them later at a higher price. It’s the perfect scenario right?

No, it’s not. You are asking for trouble, plan and simple.

Lets say, you meet a homeowner, who’s in trouble. They really want to stay in the property and you agree. They deed you the property, you have them sign a lease agreement because you are the owner and now they are going to rent from you, right? Lease agreement is perfect. It affords you the protection in case they stop paying. In order to make some money on the transaction, you raise their monthly payment to you by $200 to make it worth your while.

All is well……for one month….then they stop paying. Three months later, you still don’t have a dime from them and you start the eviction process because you’ve been making payments to protect your money you used to catch up their mortgage.

During the court proceeding, the judge discovers the homeowner has an existing mortgage on the property and he will side with the tenant. I’ve seen this happen over and over again.

Now you have lost the money you used to reinstate the loan, you made several payments to their mortgage lender keeping the loan current to protect your interest. Before you realize what’s happened, you are into the deal for thousands of dollars more than you ever anticipated with no clear way out.

So how to you solve the problem?

Don’t put yourself in that situation to begin with.

KISS-Keep It Simple Stupid. It’s the model I live by. Now, don’t send me an email, complaining I called YOU stupid.

I didn’t.

Here’s my point.

When you met with the homeowner, you quickly understood they haven’t been making payments to their lender. If that’s the case, if they didn’t pay the lender $674, what makes you think they will pay you $874.

This is a clear case of setting the homeowner and yourself up for failure.

If you are considering taking a property subject to, you should only do so when the homeowner has agreed to vacate the property. Never rent back to a homeowner when THEIR mortgage is in tact.

If you negotiate a short sale and pay off the foreclosing lender and you want to rent back to the homeowner, make sure they can truly afford the monthly payment and make sure you screen them financially. Ask to see current pay stubs and make sure their situation has changed for the better. To be frank, I’d advise against it.

In conclusion, I again stress keeping it simple. When you market to a homeowner in foreclosure and they agree to want to dispose of the property and they are willing to deed you the property, take it. Your agreement must be that the homeowner either vacate or at least set a date for their move. Without that, you run the risk of creating all sorts of problems for yourself through our the entire process.

Remember, if the homeowner is a problem client today, they will be a problem client in 90 days.