WHAT’S A RENTAL HOUSING PROVIDER TO DO?
There sure are a lot of frustrated landlords out there. Utilities are up, taxes are up, interest rates are up –and how much higher will these go? House prices are up or down, depending on where each investor lives. Some landlords never wanted to manage tenants in the first place; and some landlords are just finding that tenants are becoming more and more difficult to work with. Homebuyers are picky these days—everything had better be perfect to get close to top dollar! And renovations are literally getting more expensive by the minute!
What if a rental housing provider just wants out? What if they realize that getting peace of mind and time back is priceless? What are the options as winter approaches?
Well, there’s always the basics: sell, hire a property manager or keep renting. Selling with a real estate agent can be a great solution! But it may also require repairs or upgrades. And sellers may need some patience, depending on location, price and condition of the property. Hiring a property manager definitely frees up time, but there is a cost to that—and someone still needs to oversee the property manager. Continuing to rent is great for long-term investors, but may not solve the stress and time problem that started us down this conversation path in the first place.
Have you ever thought about Seller Financing?
There are multiple ways to partner with someone, or effectively sell a rental property or unwanted property to someone. YES, they are all legal! But we fully admit that we are not lawyers, accountants or financial planners. Before diving into any of these pools, it is wise to get your own advice.
As a rental housing provider, any of us can partner with someone on our properties. Oftentimes, there is a working partner and a financial partner. So that means, as a current frustrated landlord, anyone could find a working partner to Joint Venture with. In other words, for a share in any future profits from the property, someone else does the work. Imagine no showings, no 2 am toilet calls, and no noise complaints! Clearly this is all done with contracts and lawyers. Oftentimes, the working partner doesn’t receive any money until the deal closes—but anything can be negotiated into a Joint Venture contract.
Okay, so what if you want to get out at today’s fair market value, but you don’t necessarily need all of your money today? What better investment than a property you already know? Sure beats the stock market this week! What is this thing called Seller Financing? How could that work?
One style of Seller Financing is called an Agreement for Sale. This is when the property owner and the buyer use a regular purchase contract to decide on a price, and a closing date. An extra page is added to the Purchase Contract to specifically explain any financing agreement. For example, the buyer may give the seller a lump sum up front, then pay a monthly interest payment directly to the seller. IMPORTANT: none of the money changes hands until the lawyers and contracts are finalized. In a seller financing deal, sellers agree to today’s price, while buyers assume the risk, responsibilities, and possible rewards for the property in the future.
Seller financing can be done with a mortgage in place! This solves the problem of large mortgage payout penalties. Please note that this is not the same as “assuming” a mortgage. Seller financing can also be done with properties that need substantial renovations and repairs. This solves the problem of managing all those tradespeople, or getting lost in permit quagmire. And Seller financing can be done on properties that have no mortgage remaining. This solves the problem of possibly “losing equity” if property prices continue to decrease in an area.
But wait, there’s more! We strongly suggest contacting an accountant for the details, but another benefit to Seller Financing is having the ability to spread out Capital Gains tax for up to 5 years. The tax man still gets his money, but the seller doesn’t drown in a humungous tax bill in Year 1.
Why are we blowing minds today? Because the media has us so deep in “problem thinking” that sometimes we forget that there are a lot of solutions out there. Yes, they are legal, and yes they are safe, with good lawyers and good due diligence. One option for learning more is coming up next weekend. Barry and Donna McGuire are putting on a workshop that dives deep into Seller Financing: www.barrymcguire.ca/shop/AFS2022. Don’t have that much time? Check out https://barrymcguire.ca/ or contact him directly at bmcguire@fieldlaw.com. Why this lawyer? With decades of experience, he’s the best person we know to recommend.
If you ever find yourself with a problem property, we are buying and we specialize in solving problems. We can’t help everyone, but we might be able to suggest someone else who can. Connect with us anytime @mtnedgedevelops.
