Subject To Or Lease Option
Essentially getting the deed is the big difference b/w Subject To and Lease Option (L/O).
It sounds obvious, at first, that you would want ownership.
But I would like to know if it isnt better to simply have "control" of the property and put in a tenant/buyer.
You can collect a deposit, monthly cash flow, and then the final payoff amount.
You receive all of that with a Subject To deal, but for these L/O deals you dont have responsibilities of ownership.
Any thoughts on why having the deed is preferable?
N.
What would you do if the owner filed for Bankruptcy?
What would you do if the owner didn't pay the bills and got foreclosed?
How would you protect yourself from the owner putting more liens against the property or simply refinancing altogether, taking the cash and go, leaving you with a bum property?
How are you going to actually sell the property to your tenant/buyer if the want to exercise their option since you don't own it?
What if the seller decides that he doesn't want to sell after a year or 2? What then?
Neill,
These are just a few of the possible problems with controlling thru L/O's, IMO. It's always better to actually own the property. And make no mistake, you will be responsible for the property if you get, regardless of method. You should be dealing with sellers wanting/needing to unload their properties. After you 'control' it, the last thing these people will want to do is sink more money into it. And what other responsibilities are there in ownership besides putting $$$ into the place?
Roger
Good answers Raj. So would you say that you would NEVER do a L/O ???
If you would, how do you protect against those scenarios where the owner isn't holding up his end?
Personally, no. I would never 'buy' on a L/O, for the reasons listed.
Everything becomes easier if you actually get the deed, whether its thru subto, owner financing, or straightout purchase.
Heck, it's getting harder just to sell your own property if you haven't owned it 1-2 years, how easy do you think it will be if you don't even own the property?
Roger
Are you telling me that I am getting into REI at the worst time in history?
I cant even sell houses I buy and fix up?
I hear talk about seasoning and discussions of 6 mos holding. I was hoping to get around that, but if it is effectively 1 or 2 years, I wont be able to.
Well, ''the worst time in history,'' may be a bit much.
But yes, the majority of lenders are requiring longer and longer 'seasoning' before making loans.
It's not impossible to sell your property outright in a short amount of time. You just have to have more control of it.
Personally, I don't think this tactic will work long with lenders because it's like them shooting theirselves in the foot. When they have a foreclosure, they want an investor to buy it and fix it up to resell. However, once it's fixed, they don't want to loan money on it because it isn't 'seasoned' enough. Pretty soon, investors will either want a bigger discount from the lenders on buying or will simply stop buying altogether.
Now banks don't want to own the property anyway, much less spend money to fix it up enough that a retail buyer might want it.
Roger
Good Point.
Hopefully that change comes around sooner rather than later.
Right now, investors are paying up for REOs and aren't forcing the banks hand.
N.
Don't forget that with sub2 you also get the tax right off and depreciation.
From what I read on this site, it is best to buy "subject to" and sell "L/O".
Also, I deal w/ a lender that has no seasoning issues as long as the profits you make is not outrageous, or if it is you need proof why you bought so low and selling so high, such as fixers.
It is better to get the deed. if I can't get the property sub2, my second choice is land contract or contract for deed. My last choice would be to lease with the option to purchase. Hope this helps....
Prosperous investing,
td
You could Figure this deal its a OPT to purchase with a subject to and a time frame. Don't neccessarily consider this on your deal here but be inventive and offer a solution that is a benefit to the seller and the community as well as yourself.
Example:
Say you find a propty that needs work, owners has no equity built but propty if improved will net YES net you 30K
You get a lease opt just to relieve them the daily debt, purchase price set in stone, time limit, assignable, rentable and you can improve the house; for X months you pay their rent & ins costs and a few pennies to them (and since you have permission to lease to another you rent it & these people actually pay the owners thru you) no money out of your pocket ..follow?
Now your renters know going in you are improving the propty but will not interfer with their living there, they don't care cause they are getting a GOOD rent, much better than elsewhere. hummmm
You put a few $ and bring the MV up. You get appraisial, financing set up and then exercise your opt and close.
The owners are free, you get a better propty, renter lease is up or your resell or release at a higher $ win win win.......
these are only the guidelines, the details are up to you based on to your market, sellers, etc...... be very careful very careful of your contract have your Atty look it over.
Inventiveness is success.
ps... you hold the propty 2 yrs @ a market increase (in my area of 5.9%) see your 30K grow hehehehe (investment cost was 4K, no of my $ down)