Is LTO = Renting, In City's Eyes???
I hope I haven't made a horrible newbie mistake here... In doing my first deal, I've purchased a house with intent for Lease To Own. (OK, I close Saturday... can't wait!) I have an ad, and the phone is ringing!
But... When buying the house, the previous owner was a landlord renting. The city gave him, and therefore me, a long list of required repairs before the house can rent again. A local semi-newbie mentor told me "No problem! Just show them the LTO contract! You're selling, not renting."
HOWEVER... in reading the LTO contract, it looks a lot like it's renting plus buying an option. I've been looking over the John Burley contracts, and it has the word "rent" all through the contracts.
So... if I'm renting, at least in the city's eyes, I am going to be in for a LOT of expensive repairs, thus making the whole deal a huge loss.
Can someone reasure me, or give me a different strategy to recover?
-Mitch 
Though this is probably not what you really want to hear, a lease/option is renting, plan and simple. The only thing your tenant actually ''buys'' is the option to purchase your property. The lease part of an L/O is a rental agreement.
Other options for you might be to sell it either thru straight owner financing or a Contract for Deed.
Roger
Aw, nuts. Better to find out now than after I have a buyer in the place... Now that I'm in a mess, I need to get a plan quick!! (People are calling about the house, and how to get in it!)
I and a money partner have purchased this place with equity from our repsective live-in homes. We had planned on using cash for a quick purchase, then refi after we had the house. In the mean time we planned on having house filled in a LTO. Net result: quickly in, better cash flow after re-fi.
OK, so now I need to do an actual sale, with a seller financed mortgage. (Unless there's an easier option...) Does this mean I need to wait until I refi the property (using my investor's credit) before I can sell it?
Once I get the property, it will be free & clear with no mortgage or liens. Once I sell it, my mortgage (sales agreement? land contract?) will cloud the title, right? Therefore any attempt to refi the place, banks will say that I no longer own the property, right?
I just don't want to tie up our home equity in this place long term...
-Mitch
Any kind of contract, etc. will only cloud title if it is recorded. Personally, I don't record my contract for deeds. If you refi after getting a CFD, include a copy of it with your loan package. That way the lender already knows about it.
CFD's are a little tricky. They must be worded correctly to protect you the best. Get an attorney to draw it up and make sure that it includes a loss of equity and eviction rights to you if the buyer defaults.
Another option is to create a normal mortgage/deed of trust thru owner financing and sell this note at the closing, thus getting cash at closing. If you work with the note buyer from the beginning of the note (obtaining a buyer for the house), you should be able to get at least 90% of the loan amount. You could also do a 2nd mortgage for any downpayment/closing costs remaining and collect on it for 5-10 yrs.
Roger