Property with little to no equity.
John, If a property doesn't have any equity or just a little and I want to do a lease with an option, how many years should I set the option up for?
John, If a property doesn't have any equity or just a little and I want to do a lease with an option, how many years should I set the option up for?
doresa,
I personally do not do lease option deals because you cannot command the money down you can when you sell under Contract for Deed.
However, I like to be out of the property in two years a maximum of three years. If you build in the increase on the interest rate for monthly cash flow, and added a percentage on the backside of the price of the house plus your down payment then you will make a nice profit from the house.
Basically I have not had to do a lease option but if I did I would still want out in 2-3 years.
My question is under what circumstances would you feel a lease option would be better than a Contract for Deed?
John $Cash$ Locke
The property I was telling you about, that has a 1st of 63,000 and a second for $22,000 these are approx. figures and I don't know how much the house will appraise for but I do know the tax value is $78000. The owner is behind on two payments.
Doresa,
If you're going to do a L/O, get as many years as possible. I'd recommend setting the deal up on a one year agreement with built-in renewals.
I once had one for 26 years (one year plus 25 renewals) and my strike price was the seller's loan balance. In my opinion a L/O is a much better choice for no equity or low equity deals that are close to the median price or higher for your area. If you're in the well-below-median price range, you'll have multiple exits allowing you options in most type markets.
If you're in the higher range and there's no equity, your options are much more limited and the L/O allows you to not renew your agreement with your seller.
Getting long term commitments from your sellers is not as difficult as it might seem. "Mr. or Mrs. Seller, you've agreed you'd like me to take care of the payments, the vacancies, the management, the taxes and insurance, the repairs etc., . Exactly how long would you like me to do that?"
One thing that is crucial is analyzing your potential EXITS in any deal. And I certainly don't mean one. Multiple exit strategies are necessary when holding properties because frequently your intended exit doesn't work out the way you planned.
Like John, I haven't done any L/O's in years because I prefer the control of ownership, but I disagree with many who say L/O's don't have any benefits over Sub2. I suppose you could insert an "out clause" in your Sub2 contract, but the Sellers will be less eager to sign up.
[addsig]
Doresa, I would be careful about the lease option unless the owner is willing to make up the back payments. Getting the house "subject to" would be a far better approach. I would consider joint venturing with you and helping you through this if you like! Please e-mail me with your phone number at RMelton552@aol.com.
Regards,
Bob
when considering a lease/op I always look at how high the payments are. If they are too high for positive cash flow then I either ask the seller to cover a portion of the payment, or I offer that I will pay the full payment in exchange for the subject to deed. I also agree that renewals for as many years as possible is the best policy in Lease/ops. You could also consider selling the contract(L/O) via assignment if the payment is too high for positive cash flow.
I personally loathe making back payments in a L/O. I would go straight for the deed. If the seller is behind in payments you are not offering any more risk with a subject to deed than the situation they are already in.[ Edited by travisluedke on Date 11/22/2002 ]
JohnLocke,
What exactly is a contract for deed? How is it different from Lease Purchasing?
Bertunia
Glad to meet you.
A Land Contract - Contract for Deed is an installment contract in which the Seller finances the purchase. Seller maintains the Deed until satisfaction which means the buyer meets the terms of the Contract . Such as in my deals the buyer must re-finance in 2-3 years then they get the deed. Comparable to owner financing. Buyer gives Seller a down payment and the Seller acts as a Bank; financing the balance of the purchase or sale price. The interest rate from the orginal loan is increased by a few percentage points by the seller for a nice monthly cash flow for the seller.
Under a Subject To deal I am the seller in this instance. With a Subject To deal you get the deed 'subject to' the existing financing, you sell under Land Contract or Contact for Deed.
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A Lease Option is when a renter signs a lease with an option to purchase the property for a specific price within a certain time frame, that is called a lease option. In most lease-option situations, a portion of the rent is applied to a future down payment.
Lease options are most popular among buyers who don't have enough funds for a down payment.
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If you also are referring to a Lease Option Purchase of a property, you are still a renter with an option to purchase. You can re-sell the house, but you do not get the deed so you are at the mercy of what happens to your seller, if a lein is placed against your seller then it attaches to the property which can cause you a problem. I am not a fan of Lease Option purchasing for several reasons the lein problem however is the major reason.
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It has been my experience that you recieve a higher down with a Contract for Deed deal.
Welcome on board this board, this should help you with what the differences are.
John $Cash$ Locke [ Edited by JohnLocke on Date 11/26/2002 ]
Let me as well add my two cents.
I have done several lease OP's and some very creative! This deal would make me a little unconvertible since the homeowner is behind two payments.
I would first consider what is owed (85K), knowing that the county apprised value is (78k), I would estimate the market value to be around 99.9k to 105k. I would try and comp out your subject property and get its true market value. If the numbers work at this point, I would then check for any back taxes due, I would then go to the county recorders office and check the properties history.
If I still have a deal, I would have the homeowner advise me of their interest rate, terms of loan, payment amount and so on. If the homeowner has a high interest loan (like 18%), I would avoid the deal - since this would indicate a high credit risk if the loan was not obtained in the 80's.
If I did this deal, I would first have the homeowner agree that the payments go directly to the bank, not the homeowner. Why trust them if they are in financial trouble with your money. My next step would to write up a lease op agreement and both you and the homeowner sign this document in front of a notary and then record this document with the recorders office. I would then put this up FSBO and make a quick profit.
When I lease op I do this for no less than 18 months and in some cases 36 months.
I normally have several buyers lined up before I signed any documents.
Have a great time with REI.
Hypothetical:
If Doresa were to option this property, and then she found someone who wanted to buy it a week later.
What would be the best way to sell it and make a profit?
Thanks for the advice! I really appreciate it.
What about Short Selling It?
One Who Cares Least, WINS... walk away from this one... to many other good ones out there..
i have an opportunity to be the middle man in a preforclosure. I have never done this and would appreciate some help fast :