Purchase Lease-back Usury Laws...
I'm considering purchasing a FL property for 575,000, FMV 730,000. Owner wishes to remain in property and rent with option to purchase in 24 months. If I sell back at FMV am I violating usury laws? I've read some courts may view this as a loan and as such it violates usury laws because of the apparent extremely high cost of the loan. In this case, the renter (former seller) is not obligated to purchase, but has the option. No consideration in his monthly payment goes toward a down payment and there is no up front fee for the option. The sale of his property at a discount to me is his investment. Is there a better way to structure this deal? Again, the sellers does not wish to leave the property which is the motivation to sell at the discount.
Also, once the property is purchased, I wish to get max cash out. Is there a better/faster way to do this rather than wait untill after closing and applying for a second mortgage?
I have this type of deal lined up with about five properties, but do not know how to proceed. I need to wrap this up quickly or the prospects will walk.
Thanks everyone! :-o
check with an attorney that understand FL law. If you are not giving any creddits from the lease and do not accept any money from the option, I would think that it should be pretty cut and dry.
You did not indicate if this was a subject to deal, or just a simple buy it and lease it back. If you bought it (title transfer, etc) I would think that you would be able to sell it for whatever you would like...
just my 2 cents
AmerNHLS:
Nice to meet You!!!
You asked---
[Quote]Is there a better way to structure this deal?
YEP---FIRST:
Have the Homeowner set up a simple living trust...
Once they have set up the SLT then arrange for the owner to GRANT YOU (or better yet... your entity, e.g. LLC) the Majority Beneficial Interest + Voting Rights in the Trust ...
in return for:
A - Paying off the 1st
B - The owner's Right to Occupy + Use
and
C - Right of First-Refusal for the owner to re-acquire their home at a MAV-mutually agreed value in the future.
This will be spelled out within the (silent-unrecorded) Beneficiary Agreement for this Equity-Share Arrangement.
Quote:Again, the sellers does not wish to leave the property which is the motivation to sell at the discount.
OK... But have you determined if they CAN AFFORD TO STAY & PAY???
Quote:Also, once the property is purchased, I wish to get max cash out.
WHAT I WOULD ARRANGE (in the above cases)
Try 90-95% purchase financing with a 5/1 ARM (if you qualify...rates around 4%)
you are then in effect BUYING the home from the "Trust" at FMV and will be able to SAFELY(avoiding usury + Predatory lending issues): SELL IT BACK to the OWNER!!!
Quote:Is there a better/faster way to do this rather than wait untill after closing and applying for a second mortgage?
See my answers for financing ...above)
Also MAKE CERTAIN YOU determine IF They CAN AFFORD TO both STAY & PAY???
Happy investing!
Derrick Ali :-D
Although Derrick did address how to utilize a trust, very adequately, I'll just add a word or two about how the law views a Sale/Lease Back Option.
There have been some court decisions to effect that the deal was legally, a usurious (too high an interest rate under law) loan, simply disguised as Sale/Leaseback, and was therefore void and buyer REI lost the case, his investment, etc.
The gurus on this board, such as John Locke, et al, do not like the SLB for this very reason, and I'd go along with their opinions and experience.
While it's always tempting to just let the residents stay in their houses, just understand you're taking a mighty big chance.