Advice needed-L/O, ILC or no deal? - Posted by Alan-Baltimore

Posted by Tarun_MD on February 27, 2002 at 18:12:54:

In my opinion, it is definitely better to buy on a land contract as compared to a lease option. You have more control of the deal with a land contract.
I am just curious as to why you are not asking him for the deed?
Also, why are you agreeing to give him 10k upfront? Thats too much money to give to a seller on a lease otion deal or even on a land contract.
For me to get involved in a deal, I HAVE to make some money upfront.
Why not agree to give him more than 20k if he will only take 1k-2k upfront and the rest in a couple of years? You can always adjust your selling price with your tenant/buyers to compensate for the extra $$ that you agreed to give your seller.
If you do a one year lease option with your tenant/buyer, there is a good chance that they will not excercise at the end of the year. Just renew their option for one more year if they give you a few thousand more as option consideration. This will easily make up for the additional money that you might choose to give your seller for allowing you to get in light.
I just made 3k on a renewal where one year was up and I renewed their option for one more year for an additional 3k. I got 1500 ufront and am fiancing the other 1500.
Good luck!

Advice needed-L/O, ILC or no deal? - Posted by Alan-Baltimore

Posted by Alan-Baltimore on February 26, 2002 at 17:49:50:

I’ve been mailing out postcards with great success and recently got this lead.

Owner is in process of buying new home and had been thinking of listing his house when he got my card. After making a tentative offer, I went to see the property which is located in a quiet suburb of Baltimore.

Here are the facts:

SFH (4BR/2.5 BA) in very good neighborhood with few recent sales (This is because it is a homeowner street with longtime residents).
Comps in area up to $160,000
Property has two mortgages totaling $117,00 (payments of approx. $1220)
Owner says he’ll take $20,000 for his equity (I started at $18K, he wanted $25K). The payment would be structured as $10K now and $10K as 5 year balloon with interest only payments (rate to be determined)
Thus my ultimate buy price is $137,000 not counting opportunity cost of putting up the $10K and interest on the balloon. I should recoup most of the $10K from my tenant/buyer.

The house is in excellent shape (might need a coat of paint and some carpeting).

Here’s my exit strategy
I would sell on L/O at $155,000-160,000
Get at least 4-5% down ($6,200-8,000)
Should rent for $1450-1575 per month (would depend on how much rent credit I decide to offer)

My gross profit is then $18-23K plus cash flow of $230-355 per month (less any rent credit).

I’m still undecided as to which path to take for buying the house–Lease/option or Installment Land Contract (notarized but unrecorded to avoid the Due on Sale bogeyman).

I’m leaning towards ILC structured as a sale of $137,000 with $10K down, $10K balloon and the balance subject to existing loans.This route seems safer to me in light of having to put up the initial $10K, but I’m open to suggestions.

Up to this point, I have either bought and paid for properties (using conventional or hard money loans) or I have done sandwich lease/options with no money out of my pocket. This would be my first Land Contract and I’m looking for any advice on the plan outlined above (either the numbers or the entire approach).

Thanks in advance.

Re: Advice needed-L/O, ILC or no deal? - Posted by Brent_IL

Posted by Brent_IL on February 26, 2002 at 18:11:24:

I would sell, but not buy on an ILC.

Forget about giving the seller interest. Explain that he is saving more than that amount on commissions not paid. $10K due in five years. It never hurts to ask.

If the house is actually worth $160,000, you should be able to bump it up at least 10% for the low-down seller-financing.

To repeat the advice of others, don’t tell the buyers that you want 4-5% down, let them tell you what they have to spend.

Sounds like a nice deal.

Thanks and one more question? - Posted by Alan-Baltimore

Posted by Alan-Baltimore on February 26, 2002 at 18:38:52:

Thanks for the quick response. I’m supposed to meet with the seller tomorrow with paperwork in hand and couldn’t make up my mind as to which approach to take.

However, I’m a little confused as to what you mean by sell, but not buy with ILC. Are you saying to buy via L/O and sell via ILC?

This advice concerns me since I have this gut feeling that an ILC would hold up better in court than a L/O, especially here in Maryland. I’ve been told by a couple of different lawyers that you have to go through a formal foreclosure process (3-6 months or more) to evict someone out of an ILC (this would be me in this scenario) whereas a L/O is a simple rent court eviction (this would be my tenant/buyer).

Any comments would be appreciated. (By the way, if you are coming to Atlanta for the convention, the first pitcher of beer is on me!)

Thanks again.