Sell Home To Rent Back

[Eric Hartmann]

Hi,

Im new to this forum and hope I'm posting in the right section.

My real estate agent listed my home on MLS in Montreal Canada for $378,000. I would like to sell the house to a property investor who will rent it back to me. My motives are to sell the home to fund a dream project of mine. My other option is to sell the house and move into a rental, but I would prefere to rent my house back, which will save me a move.

I saw comparable homes nearby renting for between $1600 and $1800 a month. Is this a reasonable rent price for me to ask for? I would sign a 1 or 2 year lease, cover utilities and grass & snow mainteneance.

My real estate agent never sold a house as a rental before. My house is listed in the MLS residential section. So far only couples and families have visited my home. I think listing it in the commercial section would attract real estate investors, but my agent thinks that since my home was never rented out, it cannot be listed as a revenue property in the commercial section. Does this make sense? Where should I market my home?

Any advice or comments are welcome here. Thanks!

[Jon Holdman]

Moved to a better forum for your question.

As a potential rental property, this is not only a bad deal, its a truly awful, horrible deal. I won't say you can't find someone to buy a deal like this, but, frankly, you're looking for a complete idiot to buy your house.

I don't know exactly the terms an investor might pay in Canada for a rental, so I'll use US terms. They can't be radically different (i.e., better) or investors would be snapping up properties in Canada.

An investor would have to put about 25% down, or $95K. At 5% and 30 years, the principle and interest on the new loan would be $1522 a month. That doesn't include taxes, insurance, property management, maintenance, capital or vacancy.

A old school rule of thumb for rentals is that the monthly rent has to be at least 1% of the purchase price. In reality, that doesn't work very well, and, at your price point, 1.5% is what's needed to be profitable. Now, lots of people buy for reasons other than cash flow, such as appreciation. But the rent you're proposing is way out of line with the purchase price.

In many areas, the ratio of rent to price you're hoping for isn't unusual. Lots of properties are like this in California and New York. In these cases, people are expecting appreciation and are able to suffer the negative cash flow needed to hold the property while that's happening. Unfortunately, that was a lot easier during the bubble and is now going to be a hard, long slog.

Realistically, you should just sell your house to whoever will buy it. If you can truly rent a similar house in your same area, then find such a rental after you sell. If you limit possible buyers to ones who will rent it back to you, you're cutting your pool of prospective buyers by 99%. But if rentals similar to your house are available then you've already found the sucker who bought a house that doesn't generate enough rent to cover their payments.

Or, you may have to choose to live in a different area. Sometimes dreams require us to make choices.