When you do a lease option you have a future profit usually. As a way to insure that you make that profit you create a mortgage on that property. There are no payments, interest etc. If there are subsequent judgements on the owner of the property the mortgage can be used to clear title so the option can be exercised. If you have to put cash into the property(septic system, paint, carpet) it is also a way to protect those investments. If my tenant buyer flakes out I don’t want the owner to walk away with my improvements. But then again that is why L/O work best with property that does not need repair.
Zman,
My thoughts about the septic system. Why don’t you take money down from someone, sell the home on a L/O for $190k and then have them fix the septic system. Tell them that whatever they spend on the septic system will applied toward there down payment and to give you a copy of the receipt. This way you don’t have to lay the money out for the repairs yourself.
Get the option with the lease agreement. Then start finding your tenant/owner. It will be more difficult with someone in there. Is he willing to fix the septic system? Can it be financed as a second? Get generous rent credits and buy so you make a good profit. If you have to put out cash for the septic system be sure to cover it in the performance mortgage.
…for your comments. The current owner is willing to assign the deed to me subject to the mortgage. I was thinking to use a land trust so not to trigger the “due on sale” clause, but not really sure the mechanics of that transaction.