Assuming a Refinanced Property - Posted by Scott -CT

Real Estate Investing
1

Posted by Jim IL on December 02, 1999 at 16:37:05:

Scott,
I’ll give it my best shot.
A land contract goes by many names, and they all mean the same thing.
they are often called, “installement sale of Real Estate”, “land contract”, “Articles of agreement for deed”, or whatever.
Basically, what that means is this:
The title to the property stays in the name if the seller. You agree in the contract as the buyer to perform certain obligations, like making payments, repairs, management etc. You control the property.
Check with your attny and CPA, and they will tell you whether or not you can also deduct things with this L.C. like you do with a normal mortgage where you do have title.
At the end of the contract term, or before sometimes, you will have to have completed all the things you said you would, and THEN the title transfers to you.
Most land contracts have a balloon payment a the end as the last requirement for you to get title.
It is a little stronger than a L/O because you HAVE to perform and buy the property, and you do not have just the “option to buy” down the road. In my opinion you also have a stronger “equitable interest” in the property this way.
Also with a “Land Contract”, you must perform, and if you default, the seller has to foreclose to get you out, instead of evicting you as with a Lease Option. (in my area anyway)
I have also found that lenders are more willing to do a refi with a Land Contract after a few payments are made on time, showing your ability to perform.
I always include a “No pre-payment penalty” clause in my L.C.'s, so that if I want to, I can refi and get title.

Hope that helps, I’m sure others here can explain this WAY better than me, it has been a long day.
Take care,
Jim IL

2

Assuming a Refinanced Property - Posted by Scott -CT

Posted by Scott -CT on December 02, 1999 at 12:27:46:

I have found a seller who owns a property free and clear. Is it possible for me to have him refinance it(he gets the cash he wants) and assume his payments. The part I need more specifics about is assumming the payments and getting the property in my name. Thanks.

3

Re: Assuming a Refinanced Property - Posted by Jim IL

Posted by Jim IL on December 02, 1999 at 14:19:54:

Scott,
I just did a deal like this. The seller was motivated, but wanted some CASH out of the deal.
I did not have, nor want to give him any cash, so I suggested that he refi, pull out his wanted cash, and then sell to me using one of my techniques.
We first tried the L/O approach, and the seller would not go for that.
We then talked about “subject to” and he declined that as well.
So, we setlled on a Land contract for his loan balance plus $1k, and an interest rate that matches his new loan.
This is a duplex, and we got into it for ZERO down, and a few dollars in minor repairs.
The seller gets his ~$750/month from me (which is PITI), and his cash NOW “Tax deferred”, which made him happy.
We collect $1100/month in rent, and that goes up next month, we increased the rent on each unit by $50/month.
The tenants were happy to pay more, because we promised to clean up the place, do a little work, and then did it.
We also do not have to pay the seller until January, and we got the security deposits, and the rent for December, so we already have made some cash. My total repairs to date have been less than $300, but will go up tomorrow, because we had to hire an exterminator. (that’ll be about $300 more).
But, after all is said and done, we will still have some cash flow in the future, equity because we bought low (his refi was for 75% of FMV), and the extra cash from this months rent. Plus, frankly, the tenants will not get there security deposits back, or at least not all, because of there treatment of the property.

I also plan on removing these tenants in the spring, and getting better ones. These tenants pay on time, but are hard on the property and messy.
The new tenants will also pay more in rent. Even after our increase, the rent is below market.
The only reasons I am not removing these tenant now is because of the time of year, with the holidays and cold weather it would be hard to fill the place quickly, and a vacancy is something we want to avoid. Besides, it is hard to kick someone out right near Christmas.

So, try it, your seller may go for it. Just show them all the benefits of doing it this way.
The tax advantage was what got my seller to go for it initially, and the idea of keeping the property in his name, and having no landlording to do helped.

We have not even made the first payment “yet” and the seller wants to talk to me about another property he has.
Perhaps we can buy his whole portfolio.
He has 5 left, and wants to stop being called by tenants in the middle of the night.
He is a terrible manager, and frankly, with little effort, we can increase the value and income on each unit.

Go for it, and good luck,
Jim IL

4

Re: Assuming a Refinanced Property - Posted by Scott- CT

Posted by Scott- CT on December 02, 1999 at 15:27:49:

Can you please briefly explain the basics of a land contract. Thanks.