OfflineI hope you having a nice holiday weekend.
As many know getting a bank loan right now, especially for an investment property isn’t easy with out a nice down payment.
One area I am interested in is entering into a lease option with the seller at a reduced price. With a short period of time on the contract, maybe six months, with the possibility to extend if needed. Then turn around and, using a buyer on my list who can’t get a loan now but might be able to qualify in a few months to a year. Put them in the house under a new lease option at a price above my lease option.
So it would address these issues:
Hard to find a loan – So get owner financing
Hard to find a buyer because they can’t get a loan either – so offer owner financing to them as well
Is something like this even possible, if not is there a similar method that would basically allow you the investor to purchase (or lock up in some type of contract) the home. Then allow you to lease option/sell it and keep the equity you found by offering it at a higher price?
I’m asking this because I have other buyer/tenants that are in this situation and I know of plenty of home to fit their needs at prices well below FMV. I just don’t want to have to purchase them with loans that require high down payments.
I suppose my another option would be to use the down payment from the tenant to pay for closing costs on a loan that I would take out. Then lease option it to them.
There are many posts that are similar to this and come close to answering it exactly but I haven't seen one that answers it verbatim.
Thanks in advance for your advice.
No matter, How much money you have...You always want to keep!Sandwich lease
sound pretty good...Just a lease/Option for rents...Always see your END.
Still I could go on forever on...possibility!
I am a REI,My name is
?
"MAKE YOUR ACTIONS COUNT"
2BIRDS---1STONE!
Is it even legal to do that? Or recommended? Any thoughts at all would help.
I suppose the original lease with the seller would have to include a condition that would allow for this.
Yes that is definatly possible!! People do that all the time... Just make sure you get option money upfront... like at least 3% of the purchase price!!
Land contract!
Randy
Land Contract + Google = Wikipedia Definition = One possible answer out of a few others now! I saw the term "Sub Leasing" quite a bit also.
I just need to make sure the title is clear and that the sellers lender will allow a sublet agreement or land contract.
Hard money can be for at least six months. Look i can talk lot's of
things...Everything i do talk is true to my belief!
What you are doing right now...Is maybe for you to do!
Randy
The whole picture is getting the contract,No more ideas at this point!
You have the golden goose when you have the contract. Now what do i do
with my contract?This is not my deal...It is yours! Still,Where is your
REI group,REA,RE/ATTOR,...Most of all...Where is your RE/BROKER. You
inspire me JC!
Randy
2birds----1stone
"MAKE THE ACTIONS YOU HAVE...count"
P.S. I forgot the big one...BUYERS LIST!
Ah! To answer my own question!
Sandwich lease option
A cash flow technique that involves acquiring a property that requires some minor rehab and repairs at below fair market value. Investor leases the home from the seller for a set period of time with an option to buy for a set price, then subleases the property to a credit-challenged person and offers them an option to buy the home at a later date and time for a set price. As the investor, you can exercise your option and buy the property prior to your tenant/buyer exercising their option to buy. Typically, the tenant/buyer will place a large deposit upfront, pay monthly payments for a prescribed period of time and pay a large sum at the end to buy the home. Investor will make money from the difference between the rent amount they are paying the seller and the rent they are receiving from the tenant/buyer.
It sounds like Greg Murphy did this alot when he first got started. Don't know if you have Profit From Real Estate Right Now but his story is in that book.
Great book! Maybe, the best RE book hands down for the current market.
Sorry am a bit confuse, if I get the seller to agree to lease me the property i would turn around and rent it to somebody else for higher price?
>>>>NEVER give up, and know that the SKY is the LIMIT. We are OURSELVES worst enemy<<<
Put simply, yes.
now why would the seller agree to do this? What would he/she get in return? And is m buyer trying to work on their credit/loan for that time period, would the buyer own the full amount after the lease term is up?
>>>>NEVER give up, and know that the SKY is the LIMIT. We are OURSELVES worst enemy<<<
I'm negotiating a deal exactly like this right now with a buyer that can't afford to let their house sit on the market for 3+ months.
ivanessa89 "Why would the seller agree to do this? What would he/she get in return?
These are just a few of the main reasons.
Seller benefits to a Lease Option
- Home not selling the traditional way (Big one right now)
- Easier to get asking price (or more for the convenience)
- End buyer is responsible for most or all of the maintenance (as apposed to a normal renter)
- ALL terms are flexible and can be tailored to the exact needs of each deal.
- Have someone else pay your mortgage while you sit on the equity
- If buyer defaults on the lease the seller keeps the down payment and all credit for months paid.
- Down payment is non refundable can be used any way the buyer sees fit. Does not need to be in a trust fund, etc. like a rental deposit. The amount gets credited back to the buyer at closing (if they close) and is just subtracted from your equity. This makes the buyer more likely to stay and take good care of the home! And is a nice fall back if they don't.
Buyer benefits to a Lease Option
- Close to getting a mortgage loan but not quite there
- Build equity rather than renting and getting NO return on your money
- Most of the benefits of home ownership (paint, decorate, etc.)
- When the time comes to buy you have built up a credit toward your down payment (or enough for the entire down payment plus some)
On the deal I'm negotiating, I already have a buyer (well a lessee actually). If the seller agrees to the terms of my lease option contract, I will first complete the lease option with my buyer (written up a little different than the one between myself and the original seller) and put their down payment in escrow. When I complete the lease option with the seller I will then use the money in escrow to pay my down payment, legal, and other fees keeping the remainder.
ivanessa89 "And is my buyer trying to work on their credit/loan for that time period, would the buyer own the full amount after the lease term is up?"
Yes they are working on it, or should be. And they would owe the amount agreed upon at the start of the lease minus the down payment and the percent of each monthly payment that went toward there credit.
Hope this helps!
-Josh-
Do you have to do a double closing when the sub-leasee decides to exercise their option to purchase . If so you have to have the closing cost figured in to the 1st lease option.
There are many options at this point which you would go over with your RE Attorney, Agent, etc. You have to be creative, I tacked 5K onto the asking price and said "I pay up to 5K of closing costs when you exercise your option to buy!" in the add. It's always easy to bump the asking price up in a lease option. You just have make sure you don't set it higher than the home would appraise for or the buyer might have trouble getting a loan. (Banks don't like lending much, if any more than the home is valued at.)
QUESTION HOW WOULD A LEASE OPTION MAKE SENSE IF THE SELLER OF THE PROPERTY OWES 300K BUT THE HOUSE IS WORTH LIKE 280K? WOULD THIS BE A GOOD DEAL FOR A LEASE OPTION?
I would be extremely cautious if not let something like that go. If it's REAL, true, Market value is $20K less than the amount owed, where do you make your money when it comes time to close? The difference is where you make your money, and as stated earlier, an upside down value does not look attractive to a loan officer.
This reminds me of a friend that needs my help and is in foreclosure; He bought the home on contract and it is upside down (meaning he owes more than the value, even the purchase price) with a private company selling him on contract, they have a reputation for turning down any hope of a short sale. Sometimes you have to give advice and move on to the next one.