Giving Reverse Rental Credits

Topics: Landlording


Admittedly, lenders are casting a jaundiced eye on marginal borrowers and those who flip houses for a lving, but this doesn’t necessarily apply to stable owner occupants with high FICO scores. To build up its cash flow, an enterprising Brokerage corporation in New England has offered a reverse rental to provide the down payment for any of its tenants who buy one of its houses, or any other house in its State. In the slow sale market being experienced, this is one way to create new buyers from among qualified tenants who don’t have the down payment funds with which to buy a house or condominium. Offering a rental credit to those who otherwise might never be able to own their own home might enable the landlord or any other affected seller to receive full value for his house rather than having to reduce the price. It’s easy to see why a landlord might want to sell out in this market, take the money, and sit on the sidelines until the market makes up its mind as to what it is going to do. That’s what I’ve been advising for a couple of years.

But why offer reverse rental credits on any other house in the State? First of all, when a State issues a Real Estate Brokerage license, that license is good anywhere in the State, so when a house is sold to a tenant, a commission can be earned by the Brokerage. Let’s say that the targeted house is a $300,000 house that requires $7000 to qualify for a loan and pay for buyer’s closing costs. Half the 7% commission would be $10,500. If the tenant had been paying $1250 per month, the reverse rental credit would provide the $7000 needed to close. That would leave $3500 in fees that would go into the Brokerage’s accounts. If it had been collecting a $1500 management fee (10%of the rents), it would take over two years of management effort to earn that much from rental fees — assuming there were no vacancies. Moreover earning a sales fee would require very little work. 
Now, let’s tweak this a little: Of course, the Brokerage might easily negotiate with the listing Brokerage to receive a larger percentage of the fee for producing a qualified buyer in this slow market. Instead of buying a house at retail, it could negotiate with lenders who had foreclosed on non owner-occupied houses to buy their foreclosed inventory, and to re-sell it to their tenants for even larger profits. Or it might solicit all its clients for an Option to buy their house, or a listing, which would enable it to keep the entire sales commission. Of course, it would also be an added attraction to better qualified tenants who could be offered the reverse rental credit from day one.   

What other creative ideas do you have about ways to attract better tenants, keep vacancies filled, and earn extra profits when you sell houses you manage? Let me know

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