Sub2 - L/O A question for Mr Locke
A question for Mr. Locke,
Do I understand correctly, that you advise against lease option purchasing however, are in favor of lease option selling? IF so why? I ask as I have heard that L/O purchasing is a good thing. Please, a little education for the new guy.
Thanks,
MFNCFF
MFNCFF,
Glad to meet you.
To set the record straight I am not in favor of Lease Options or Lease Optioning property.
Why you ask, well I will tell you. When you do not have control of the property such as in a Lease Option, then if your seller files Bankruptcy or lets say has a IRS lien placed against him there is no protection for you or your Tenant Buyer.
Either one of the above actions will affect the property to where you may not be able to live up to the comittment you made to your Tenant Buyer.
As you know when you purchase using the Subject To method you get the deed, so you own the property. Your seller is out of the picture and no liens or encumbrances that involve him will attach to the property he sold you.
Also since you are only leasing the property you fall into the Landlord category, I personally do not look good with a toilet plunger in my hand.
You are responsible for the maintainence of the property so if the air or heating system goes out you wind up paying for it. I would not look to someone like your Tenant Buyer that has little money involved in the deal and is only really renting to be responsible. My Contract for Sale buyers keep the property up and even make improvements to the property.
The amount of Tenat Buyers who actually re-finance is minimal compared to Contract for Deed buyers. I have about a 70% re-finance rate of my Contract for Sale buyers.
You will find that you will make more money when you sell on a Contract for Deed than on a Lease Option. Even the pro investors will tell you this.
Welcome on board this board, hope this gives you my feeling about Lease Options, I can tell you some of the new people who start out using the Lease Option method quickly learn how easy it is to get the deed and switch to Subject To deals to start making some serious money.
John $Cash$ Locke
[quote]
On 2003-04-22 21:51, JohnLocke wrote:
MFNCFF
1. To set the record straight I am not in favor of Lease Options or Lease Optioning property.
if your seller files Bankruptcy or has a IRS lien placed against him there is no protection for you or your Tenant Buyer.
Question:
What about if memorandum of option is recorded?
John said:
2. You will find that you will make more money when you sell on a Contract for Deed than on a Lease Option. Even the pro investors will tell you this.
Question: I've been studying for 3 wks [Dave Finkle] about options
What is another name for Contract for Deed? I know the option and lease option but could you explain "Contract for Deed"
Thanks , L
Lynn,
Question:
What about if memorandum of option is recorded?
$$$
A. The Memorandum of Option is filed to cloud the title to the property. Or it shows someone has an interest in the property in this case. The Memorandum would not stand up against a Federal Bankrupcy or Internal Revenue Service filing. They would take precedence in this case over the Option.
$$$
Question: I've been studying for 3 wks [Dave Finkle] about options.
What is another name for Contract for Deed? I know the option and lease option but could you explain "Contract for Deed"
$$$
A. With the Subject To method you get the Deed, so you can sell the property using a "Contract for Deed" - "Contract for Sale" or other State Specific device.
This way of selling is exactly what it means your Buyer has entered into a contract with you as the Seller to at some time take title to the property.
This occurs when the terms of the Contract for Deed are fulfilled. My terms normally are the Buyer at the end of two years agrees to re-finance the property.
At this time I assign the Deed to them or their Lender.
$$$
John $Cash$ Locke
$Cash$ Man,
I have just completed your "Subject To" book and both of the prior posts have hit upon a few questions:
The way I understand how you take control of property is by Contract Of Sale or Agreement For Deed or Land Contract, depending what state you are in, they all essential have the same purpose. It sounds as if you are a steadfast "Subject To" man who gets the Deed and I see the power in this technique.
I have been doing my homework on "Buying on Lease Option" which Conti & Finkel tout as their technique and I am trying to compare the two strategies.
I understand that an Option is just a "Contract" and not an "Interest" in real estate and that is why you say "Get The Deed".
So here are thoughts and questions regarding your comments above:
1. I would have to assume an IRS Lien is very rare, and being a gambling man, would take the risk. But since there seems to be no stigma attached to Bankruptcy anymore, I would be concerned about this happening. You mention a Federal Bankruptcy which again I would think was rare, since most Bankruptcies, I think, are state specific? I understand that these are risks, but are they low tolerance risks?
2. The way I understand your method, you are still not actually getting the deed at time of purchase; however, from the way your contract reads it sounds as if the Seller is executing a Warranty Deed (Grant/Bargain/Sale) at time of Initial Escrow and at the end of the 24 month period when your buyer refinances the deed will officialy transfer? Is that correct?
3. Finally, along with your Contract For Sale I assume the Seller is taking a Promissory Note as your commitment to fulfill you end of the deal.
I hate to highjack this investor's post, but I think it will help all three of us.
Thanks!!!! You are DA MAN! <IMG SRC="images/forum/smilies/icon_cool.gif"> [ Edited by StaceyWyatt on Date 04/22/2003 ]
John hardly needs anyone to comment, especially me. But I want to speak for myself, being a small timer and not having the experience that John does, I agree with all that he said.
Why would you want to enter into a LO when it makes so many disadvantages? It makes you a landlord, it makes you responsible for a weak tenant. If I wanted to be a landlord, I would want to go out and conventionally purchase, not with a LO. You have those headaches, and although some might think of it as not a problem or issue, I sure do. A very important issue to me is the QUALITY of the tenant you put in with a LO versus a BUYER you put in with a Sub-to. I want the buyer to commit, to put up the cash, to desire to get the property in their name. When someone puts a financial interest into an agreement like they must with a sub-to transaction, they are going to follow through, they are less likely to trash the property and will likely IMPROVE it..how about that?
I know a LO is easier, sure it is easier to get a rentor in, but they are only going to be just that, a rentor. And add the lease consideration to the payment they are making and that even INCREASES the chance for default. The rentor has a higher chance of thinking "Man this payment is high, I would rather rent for less"..also factor in the interest deduction that the buyer in a sub-to receives, which even LOWERS the payment.
I cant see how anyone would want to enter into a LO, it makes so little sense and in its form, it is what created the availability of properties..easy terms.
But those that do LO's I hope they work for you, I know that it makes it easier for me to get a property and sleep at night knowing that my BUYER wants to be there and is taking care of our property.
Before you critique a method, it is best to know it in and out. The response made above indicates that you dont know the process of the contract for deed and how it works.
Sorry John, but somthing got over me..maybe its the heat here..
GL everyone!
Stacey,
Q. I would have to assume an IRS Lien is very rare, and being a gambling man, would take the risk. But since there seems to be no stigma attached to Bankruptcy anymore, I would be concerned about this happening. Since recording a Memorandum of Option will cloud the title does this offer us, the investors, any leverage?
$$$
A. Do you want to tell the Bankruptcy Judge or the IRS Agent about your Memorandum of Option and see which one gives you the biggest smile.
What leverage would you have I just can't think of any. You would probably be so far down on the list in either case you would be up that creek without a paddle.
$$$
Q. The way I understand your method, you are still not actually getting the deed at time of purchase; however, from the way your contract reads it sounds as if the Seller is executing a Warranty Deed (Grant/Bargain/Sale) at time of Initial Escrow and at the end of the 24 month period when you refinance you will have the deed? No problems.
$$$
A. You get the Deed from the git go, no time delays what so ever. The Seller signs the Warranty Deed, Grant Bargain and Sale Deed or other State Specific device at closing, then you give them their "U-Haul" money for their equity the day they move out.
The Deed is easy to get, why pussy foot around, just have them sign the Deed to you, done it many, many times, so have many of my students.
$$$
Q. Finally, along with your Contract For Sale I assume the Seller is taking a Promissory Note as your commitment to fulfill you end of the deal.
$$$
The Seller is totally out of the deal he gets his 'U-Haul" money and is gone on down the road. You use the Contract for Sale when selling to your Buyer, never for buying.
$$$
Stacey, you have my cell number do not hesitate to call me if you have further questions.
You old Lease Option people have to think about it for a while.
John $Cash$ Locke
$Cash$ and WallStreet,
I appreciate the candid replies. I firmly believe "Subject To" is the way to go and in no way was implying that L/O is a better strategy...
WallStreet, I obviously am just figuring out the "Subject To" world, hence that is why we ordered John's book... to learn from the master! So sit back, have a nice cold fruity drink (one with that cute little umbrella) and cool off. I have been on here long enough to know $Cash's$ credentials.
I am an engineer by education, so I like to get all the facts about all the strategies. After I finished John's book, I filled my head with all the L/O "stuff"... so I was just trying to straighten it all out in my mellon!
Thanks!
Stacey,
I have a crisp five dollar bill for you right in my hip pocket. I appreciate the offer for the "fruity drink". I prefer a Strawberry Daquiri and make sure you blend it properly..oh and keep the umbrella, not my style!
Not sure that my post had any reference to ONLY you. But I appreciate your reply.
Wall Street,
Send me the bar tab! Happy Investing!
John Locke,
Thank you for your reply. That helps, for plungers don't seem fit my hand well at all.
When folks say they just got your course, any idea to which one they refering?
Thanks again.
MFNCFF
If you were worried about a memorandum of option being filed then include a clause stating that they cannot cloud the title. I think this is personal preference. If you do sell on CFD then I would check your laws (foreclosure) regarding getting the person out if they default. Cash has awesome paperwork (cognovit note) that will help if it works in your state. Luckily it does in Michigan. I would sell on lease option but I would not buy on lease option.
Tom[ Edited by tbelknap on Date 04/23/2003 ]
tbelknap,
You are correct, I have never had to do a Judicial Foreclosure to get someone out of the property.
The Cognovit Note always gets the job done, when used properly.
John $Cash$ Locke
l/o you mean no/no later, ron(lv)