subject to, lease option question
hi, I have a question. Do payments from your tenant/buyer work like a mortgage payment? What I mean is, when the tenant/buyer exersices their option, do you subtract from the purchase amount a principle from payments you already recieved? The reason I ask is because I have seen people talking about adding like two percent to the interest rate on the mortgage that you take over subject to.
For example, original mortgage is at 7% you make it 9% so that you collect a little extra money each month. When you make the payments to the bank, some of the money goes toward interest, and the rest goes toward the principal. Do you have to subtract that same principle that you paid after you bought the house from the sale price to your buyer?
Now that I have confused all of you, I look foward to your answers. 
Okay, first I am a really newbie investor. However, I have worked allot of mortgage/lease contracts so I have a bit of experience on this issue.
First, the contract between you and your buyer is either a lease or a lease/option to buy.
It is completely up to you as to how you work the terms of the lease but make sure you are true to your marketing plan.
Options
1. Work it like a loan at a given percentage. I used to provide an amortization table of the loan for the client. There are many software packages that can produce this for you. This way, both you and they know how much is interest or how much is principle. Of course this assumes no late payments, closing fees, etc.
2. You can provide a flat amount of each payment towards the "principle" and the remainder is interest
3. You can have it a straight lease and a simple purchase option at the end of the lease term to refinance and purchase.
Make sure you have the clause in the contract that any late payments reverts the contract to a simple rent basis and is subject to local landlord/tenant laws. This allows you to give them the boot without the hassle of foreclosure.
If I understand Subject To correctly, the goal that you are trying to reach on this is that the "buyer" feels that they "own" the property sufficiently to take care of it and not destroy it or otherwise treat you as a landlord with problems. The house is theirs as long as they keep the payments coming.
Since your profit should be in the purchase and not the sale, the loss of a small amount of "principle" should not be an issue, but.... this is creative real estate.
In addition, they will need to "refinance" the property at the end of the term to clear the previous owner and you.
Lastly, I would think it a good move for you to give them 6 months notice prior to the "closing" date reminding them that they will either need to apply for financing or renegotiate the contract or ...
The stronger the buyer feels that they have something to loose, the better they will be diligent about taking care of business.
The bottom line is to, as Cashman states, make sure that the documents that you use are checked by a local attorney to make sure you are covered and legal.