I "owner-finance" vacant Florida parcels. Most of my deals are small "plated parcels" between 1/4 and 1/2 acres. My main "outlet-for selling" over the years has been on eBay. I "toot my own horn" loudly when I list an "owner-financing" deal:
No Qualifying! No Mortgages! No Banks! No Interest! Low Monthly Payments! No Realtors! (Except me! LOL!), No Property Taxes! No Closing Costs or "Junk Fees"! Clean, "Free and Clear" Title is 100% Guaranteed, or Your Money Back! -----------> These are some of my "long-winded perks" that I promote in my listings.
My "secret sauce" is a simple two-page "Rent-to-Own" agreement, plus a "Complimentary Payment Schedule", for the "Tenant-Buyer's" convenience and record-keeping.
Here's a typical deal for me: Let's say, I obtained a batch of 1/4 acre lots from a bank (REOs) or bought a bunch of donated Habitat for Humanity parcels, ...all at good deals, ..."below wholesale". Let's say my net cost for a nice 1/4 acre parcel in Central Florida is $1500. I would "offer-up" this vacant lot for just $60 down, and $135 per month for 24 months, ..."that's it!" So I would "gross" on this example: $3,300.00
So once the "Tenant-Buyer" completes all payments, I would create a Warranty Deed, legally transferring over title to the "Tenant-Buyer".
I explain to the "Tenant-Buyer" prospect because there is "no qualifying" to obtain this deal, my agreement is "quite punitive". For example, I have a "10-day grace period" for payments. If payment is not received within the "grace-period", ...a $50 late fee will due immediately! If two payments are past due, according to my agreement, I may simply cancel the agreement, without any notice! And all prior payments will be forfeited as "liquidated damages". Simply put, prior "defaulted-payments" will be considered as rent payments. Only when the "Tenant-Buyer" successfully completes all 24 monthly payments (per this example), I will "rent-credit" 100% of all (24) $135.00 payments (also crediting the $60 down payment / I.e., "escrow deposit"), as "payment-in-full" for this example.
Capital gains or losses will be due to "Uncle Sam", just as any other real estate deal.
After figuring-out all allowable "IRS deductible expenses", to obtain your "cost-basis" for this example, you then "do the math" and pay "long-term capital gains" (or loss).
These deals are "never recorded" by me as a mortgage, contract for deed, etc. So the "Rent-to-Own" agreement is between me (the "Landlord-Seller") and the "Tenant-Buyer" (nothing recorded until deal is "paid-off")
In all my years using this "owner-financing" technique, I have never had to evict a defaulted buyer. My agreement does not allow any building, permits, no living on the property allowed, until property is paid-in-full! I never had a "Tenant-Buyer", "take me to Court", contesting the "Rent-to-Own" Agreement.
Over the years, on average, two out of every ten of my "Tenant-Buyers", do indeed default, ...and simply "walk away".
A number "Tenant-Buyers", do an early payoff (which I allow) in less than a year (instead of 24 months), so this deal would then become an IRS "short-term capital gain or loss", reported for that tax year when paid-off (as, no longer an IRS "long term capital gain or loss").
My "owner-financing" technique ("Rent-to-Own" or "Lease-to-Own"), is very simple for my "Tenant-Buyers" to understand, and "Rent-to-Own" has avoided "foreclosure costs and lengthy headaches" for me, as like I mentioned, an average of 2 in 10 of my "Tenant-Buyers" wind-up defaulting.
My advice to all of you is to keep detailed, accurate records of your costs and expenses of every deal. If you are "selling real estate over time", allowable expenses and deductible expenses "add-up" and need to be written down as they occur, so you can remember all those allowable deductions and expenses (if you don't keep ongoing records of expenses, as they occur, you may forget to add these expenses to your "cost-basis").
Good luck to you all and stay safe!
Bob Dobbs, Trustee and Settlor of the Land Rescue League Trust)
