Doubtful - no real collateral - Posted by John Behle
Posted by John Behle on January 06, 1999 at 10:43:48:
A lease option can fall apart. You don’t really have the property as collateral. You can’t foreclose, only fight it out in court. Even if a buyer felt confident, they are not very liquid. It would be hard for the note buyer to ever sell or finance.
You may talk some local investors or institutions to loan against your cash flow and assets, but they will still be looking to you.
I buy notes because the worst case scenario is I end up with a property at a substantial discount. Enough of a discount that even if there are problems, repairs, etc. - I am safe and my investment is covered.
That isn’t to say lease options, created paper or any other cash flow is bad - just not as liquid and safe. I started into the paper business creating notes that had a great cash flow but were unsaleable. I did a lot of wraps that had as little as $100 equity in the wrap, but carried a cash flow of $50-200 per month from the spread in the interest rates. Even when I had equity in the 5-10K range, it was the top “dead equity”. If the deal fell apart, the equity would likely be gone. VERY hard paper to interest a buyer in.
On L/O paper, you have to create an investor or partner to loan against the cash flow and the company. If you do it in the form of a company (LLC or whatever) then you build a cash flow and track record that can attract capital at some point.