Posted by BillW. on December 05, 2000 at 21:37:20:
Thanks for clearing this up JohnBoy. You are correct, of course, and I learn more every day. I was going under the idea that the seller in this case would want to carry the deal full term to maximize monthly cash flow. I can see that what you say is not only a better way, but also deals with the legal requirements in your area. I will double check my area, since
I have recently moved here and am not sure of the exact regulations here. (Always pays to check.) Thanks again for good info.
BillW.
Posted by Stacey on December 04, 2000 at 22:16:31:
Hello everyone. I have spent hours reading all the messages the past two days. I ordered the Carlton Sheets course a month ago and have listened to it twice and I am confused.
I can’t seem to get the total concept of land contracts or lease options. With a land contract I know the seller gives you a contract for a specified number of years, after which you must then transfer the deed into your name. At this point I assume you would need to qualify for a mortgage. Am I correct, and if so, what happens if you don’t qualify. My case - my husband and I just barely get by financially and have a 2 year old. We also own our own house with approximately $15,000 in equity. We have good credit - but are just barely able to pay the mortgage and bills. So, how would we be able to qualify for another mortgage in a few years? In addition, I would like to purchase many homes, how is it possible to continue obtaining mortgages when our income is low.
It seems as though everyone in this group is very successful. Any advice would be greatly appreciated.
Posted by Kevin Subbert on December 05, 2000 at 23:16:52:
I know what you’re going through Stacey. All these techniques can be very confusing at first, but to answer your question as simply as possible, a lease option or a land contract is set up with your seller for a specified amount of time. You control the property during that time. You would then sell the property during that time and pay off the seller, thus fulfilling your obligation to the seller, anything in excess is your profit. You never had to actually get a new mortgage because you completed the deal within the time frame of your lease option or land contract.
So, if you lease option from your seller for 3 years, and then sell on a lease option for 12 months, you will not reach the termination of the sellers lease before you exercise your option to buy. Thus, the only mortgage being applied for is buy YOUR buyer.
Stacy, in addition to reading everything here, including the articles, get the book 5 Magic Paths To Making A Fortune In Real Estate by James Lumley ($14.95 at just about any Borders or Barnes and Noble). Choose a “path” and concentrate on that just to get started. I would say not to spend a lot of money on the courses just yet (they ARE worth the money but if you’re short on cash…) but maybe put some of that money into advertising that you are looking for properties. Plus, explore the ways to find properties cheaply or at no cost - make a flyer at your local Kinko’s for example, or call the “I Buy Houses” ads and find what they are looking for, get the referral fees.
With the equity you have in your home, you can probably use that as leverage at some point; be sure to read the Financing Forum and the Paper and Notes forum, don’t try to understand all of it, just be open to learning.
The key is to remember that this is NOT get-rich-quick, but get rich slow (as many have said here before). You have the interest, you can get the education, and you can do the legwork - and that’s about 99% of what you need!
Posted by BillW. on December 04, 2000 at 23:46:17:
Stacey,
Land contracts, also called contract for deed in some places, are a way to buy where the owner acts as the bank. There is no mortgage with a bank involved now or later. You pay the owner and when you have fulfilled your part of the deal (paid the amount agreed upon), you get the deed and the property is yours. No mortgage to get later. Lease options are where you lease a property and also have the option to buy it later at a specified price and terms. You don’t have to buy it, you just have the right to buy it. Hope this helps clear up these points.
BillW.
Trying to learn ALL OF IT at one time is overwhelming. It tkaes patience to start understanding ALL fo this. 2 days reading here won’t do it. Maybe a few months—seriously. But keep on going over everything until you start to see the light.
To answer your question, you don’t have to get a loan later—you could sell. Or if the property appreciates in value, AND you want to keep it, hopefully with appreciation, it will be worth enough for you to refinance it at 80% or less of value and then the rent you get should off set the new loan payment, thus making it easy to qualify with your good credit.
I’m a newbie myself. But, the best advice that I can give you is: Keep reading these posts. There are tons of people with alot of experience here. If you’re interested in learning about Lease Options, get Bill Bronchick’s course. I just received it and it’s great. Since I’ll be concentrating on Lease Options and Flips, I’ll probably purchase his course on that as well.
Posted by JohnBoy on December 05, 2000 at 14:38:36:
Bill,
Most Land Contracts will require the buyer to get a mortgage at some date in the future. The only exception being if a seller was willing to carry the contract full term…30 years. Most Land Contracts will be amortized over 30 years with the balance due in 1 - 3 years, meaning the buyer will need to refinance and get a mortgage to pay off the contract.
Also, depending on the state you’re in a land contract can be treated the same as an eviction on a rental if the buyer were to default on the payments. Whether an eviction or a judicial foreclosure would be required would be dependant on the terms of the contract and equity the buyer may have in the property since they purchased it.
In my state, a Land Contract that is for less than 5 years and where the buyer has less than 20% equity in the property, the buyer can be evicted for default on the payments. If the contract is for a longer term of 5 years or more and/or the buyer has more than 20% equity in the property, the default must be treated under the mortgage foreclosure laws pertaining to this state…meaning you must go through the judicial foreclosure process to get the property back.
This is one of the main reasons a seller selling on contract will require the balance paid in full within 1 - 3 years vs. holding the contract for a full term to amortize the payments out over 10 - 30 years. The seller could always agree to write a new contract at the end of the term should the buyer have a problem getting financed to pay of the contract. This would normally include adjusting the selling price higher to reflect any property value increases over the past 1 - 3 years.
Posted by Ben (OH) on December 06, 2000 at 04:22:02:
Johnboy, your post–
In my state, a Land Contract that is for less than 5 years and where the buyer has less than 20% equity in the property, the buyer can be evicted for default on the payments.
Is it less than 5 years AND/OR less than 20% equity?