Avoiding Landlord Burnout With Seller Financing

Just read an interesting article on Landlord burnout in the UK. The National Landlords Association found that 28%, or 400,000 of 1.5mm UK landlords admit their rental property was damaged by their tenants in the last year! Depending on what part of the country they are located, those numbers varied from 21% to a whopping 48% of the properties are being damaged by the tenants.

Shock and horror! The worst part, is YOU have to pay for any damages they cause. You own it, you eat it.

And while having a rental property does create a passive income stream for your future, dealing with the problem tenants can be expensive, and stressful. Imagine if almost 1/4 to 1/2 of your rental properties get damaged by the very people you trusted to rent them?

The solution to landlord burnout is to consider a rent-to own, or a Seller Financing model. It is a great way to wash your hands of the hassles of dealing with tenants, toilets, and termites. Since they are renting, they most likely have credit issues that prevent them from getting a loan from a conventional bank.

The best part is, you are getting interest payments amortized into the monthly payment, which typically end up being 2-3 times the amount of the loan, just like the banks make! If you own the property free and clear, then you have every right to sell it to them, and carry the note yourself if they can't get a loan. However, you can't just write the note yourself like in the old days.

Now a word of caution; With the implementation of Dodd/Frank, Regulation Z of the Truth In Lending Act, or TILA, was amended to comply with requirements concerning the qualification of loan originators, their compensation, and their compliance with the laws.

All home loans that are occupied by the owner require a licensed loan originator in that state, or RMLO. However, if you are selling your home to an investor, you don't require a RMLO and can write the note yourself.

Also, if you write more than five seller finance notes to home owners a year, you now fall under the Truth In Lending Act, or TILA, which requires you disclose at least 18 different items on your note documents. It also requires you to disclose APR and terms in an approved manner if you are advertising the property as Owner Financing Available.

If you decide to offer seller financing, there are many things to consider, and we will cover that in future articles. You will want to write a note that is structured properly to offer you the highest price in the future should you need to sell it.

You need to consider the 5 C's of Credit:

• Character: The most important as they have to show they can handle the responsibility of paying off the note.
• Credit: You have to check their credit to see how they treat their other debt.f
• Capital: Do they have the money to pay the note off, and pay for all the repairs/taxes/expenses of owning the property?
• Capacity: Do they have the ability to pay off the note with a steady job or enough income?
• Collateral: They have to put some "skin in the game" to show how serious they are.

Once you have the note, then you can hold it until they pay it off for long term cash-flow, or until they refinance in the future. Realize the issue with a 20 year note is the time value of money. The payment they make today will be worth much less in the last 5-10 years of the loan. Just like $500 bought a lot more 10 years ago at Walmart than it does today, in 10 years, that $500 will buy much less.

So after you have a history of 3-6 months of payments, now you can look to sell the note on the open market to hungry buyers. Depending on how you structure your note, it could have a value of $0.70 - $0.85 cents on the dollar. Now you can take that money and travel, pay bills or medical expenses, help out a family member, or buy another property and do it all over again.

Call us if you have any questions on creating a solid seller financed note.

Christopher Winkler
Silverwood Capital, LLC
1-714-434-1441

Source: http://www.prweb.com/releases/rick-otton-strategies/uk-property-market/prweb12202866.htm