LEASEBACK-Residential
Can someone please tell me something about residential leasebacks.
Is it legal for a builder to sell you a house with 10 % down using conventional financing and lease it back from you and return your 10% as an "earnest money" or some other term for leasing it from you?
The builder would have a management team that will take care of the tenant screening, rent etc. and LEASE OPTION the house on your behalf. You, as the investor get your check every month or maybe a small negative cash flow in the 1st year. in subsequent years you make a positive cash flow till the tenant buyer exercises his option to buy.
So, is it legal? Does anyone one know of anyone doing this?
[ Edited by Smagnolia on Date 02/15/2008 ]
Everything you asked about is legal.
If the builder is giving you a 10% rebate, if the rebate is part of your purchase agreement, and if the lender is fully aware of the structure of the deal, then everything is OK. If not, then you may have a mortgage fraud issue to work out.
I have seen some of these deals structured with a venture partner who has already negotiated a 15% discount from the builder. You enter into a venture partner agreement whereby you purchase the property from the builder at full price, and the venture partner "rebates" 10% of your purchase price outside of closing.
After your venture partner gives you 10% cash back about two weeks after settlement, your venture partner agreement is dissolved. Any lease back or lease option arrangement with the builder is a separate agreement outside the purchase transaction.
What you described is straight up ,legal. No extreme creative financing, no mortgage fraud??
Perfectly legal. No mortgage fraud if the lender is fully aware of the structure of the deal and bases its loan decision with full knowledge of the arrangement.