First Lease-Option/Sub-2 Deal!! >>>>
I am putting together a L/O/Sub-2 deal which seems to be good for both the seller and buyer.....I have a few concerns on this since I have not done one of these deals yet....This deal will be for 2 duplexes:
Seller will accept $5000 cash...Will sign a Lease Option w/option to buy in 12 months at a certain rate...Seller will make all mrtg payments, and I will then get it refinanced after that.
Questions:
1)Is this property treated as "mine" as far as taxes and deductions and all that is concerned???
2)Would there be much if any closing costs now since there will be no x-fer of a mtg?
3)When I refi in about 1 yr, I should not have to put much if any downpayment since I would be "seasoned" and already OWN the property, RIGHT?
4) How is this diff than a true sub-2 deeding the title over to me? Is this just as good in this case???
5)Any other ideas/benefits on this?
Thanks to all 
1) No, it belongs to the seller. His name is still on the Warranty Deed
2)There are no closing costs if you're not closing. So when you do close 12 months from now, that's when you'll pay. However, there are lenders out there will treat it as a refi, so if you're property apparaises right you can include closing costs, maybe cash out.
3)see 2). Technically you don't own the property though, but the rest is true.
4)Hmmm. My understanding is that with a Sub2 you are paying the mortgage payments yourself. With a lease usually you pay the seller the rent, so if he's not paying the bill and the property forecloses, then you might be out $5000.
There are a lot of other differences, minor ones, depending how a deal is treated. For instance, Quit Claim Deeds are always recorded, but Lease Agreements are usually not. Etc...
5)I'd say your main purpose in doing this is cashflow and control,with the least amount of liability. So I would kind of weigh everything against that 'plumbline', if you will.
Good Luck!
Thanks, but what about this ...
How about a Contract for Deed? Would this be like a quit claim deed and I get the deed after the contract has completed.
I am mainly concerned about structuring this deal so after 12 months of payments, I will not have to put a Down Payment on this property when I refi with the bank, since I should be "seasoned" ... But I guess this will only work if the actual Deed is in MY Name???
Thanks!
No, not necessarily.
Aside from the banks there are plenty of mortgage brokers that only care about 12 payments that have been made on time.
I know this for a fact, because the first deal I did was a lease purchase. I put 10% down, and refied after I made 12 rent payments. When I refied I paid back cost of repairs, 10% down payment, and walked away with enough to put 10% on my next deal. So trust me when I say that lease purchase are treated as a refi, not a purchase after you've made payments.
Also, 12 months is common, but I've heard of (payments for) 6 months to be done as well. You just have to network, shop around.
A contract for deed - here's something I pulled out of an older article:
"Saw your recent discussion on contracts for deed.
What is so onerous about them is that even though a buyer will get a deed at some point, if he fails to make a payment in later years, the contract is called, the deed is destroyed and all payments made thus far go to the seller who still retains title.
I am not sure how that is a benefit to both, but rather, only benefits a seller.
At least in a deed of trust, a buyer owns the land subject to the deed, he build's equity as he pays off the loan and there are more fair provisions under foreclosure protecting both parties, at least more than what is permitted under a classic K for D arrangement.
....."
It seems like there are a lot of similarities with a lease. I've not used a contract for deed, although I've considered it as a way to make a seller more comfortable about owner financing. The seller's attorney advised against it, I can't remember why.
Do a little searching on the web, you'll find some more info on contract for deeds.
Good luck!
vanrijnr,
Their attorney probably advised against a CFD because it seems that at least in NC, CFD's are a 'no man's land' of financing. The court won't allow an eviction because the buyer has 'equitable interest' and they won't allow a foreclosure because the seller still officially owns the property. Now a properly worded CFD can get around this, but it is not for the novice.
westside28,
Whatever method you chose to control the property, it is not considered yours until the title is transferred into your name. Talk with a good mortgage broker about your financing options if you pay 12 payments on a L/O.
Big question here is why would you allow the seller to make the mortgage payments? How will you know if they are actually making them or just pocketing your money while the bank prepares to foreclose?
A better option would be for you to make the payment directly to the lender and the difference to the seller/landlord. The best method would be to find a third party willing to accept your payments and disperse the funds accordingly (pay the mortgage, insurance, taxes, etc, and the difference to the seller).
Roger