Can anyone explain difference between L/O and CFD? - Posted by Lori in Minnesota

Posted by MoniqueUSA on February 07, 2002 at 06:32:37:

"My profit would come by raising the monthly amount to something above $2K?"
Yes, your monthly cashflow comes from getting a higher monthly amount from your buyer than what you owe on the mortgage. If you will owe $2K/month on a $220K loan balance at 8%, and let’s say your buyer’s mortgage is at 10.5% on a $250K loan balance (after their down payment), and their payment is $2400/mo with taxes and insurance, then you get the $400 difference.

You also get the difference between your loan balance and their loan balance when they pay you off on the backend.

"Would I then put the title in a trust and make the buyer the beneficiary?"
Actually, no. This would be selling Subject To rather than on a CFD. You would BUY this way. But to sell on CFD, you use a CFD Agreement. Both Louis Brown and Bill Bronchick have these documents in their courses.

All that said, Anne’s post above recommends to sell on L/O rather than CFD in MN.

MoniqueUSA

Can anyone explain difference between L/O and CFD? - Posted by Lori in Minnesota

Posted by Lori in Minnesota on February 05, 2002 at 18:02:05:

I am a new investor and I’ve been trying to sell houses using L/O and virtually all my callers ask me instead for a Contract for Deed option. Can anyone explain what is the difference between these two? Thanks!

difference between L/O and CFD - Posted by Anne_ND

Posted by Anne_ND on February 06, 2002 at 15:54:32:

Hi Lori,

I don’t suggest you sell using CfD in MN- the buyer is too well protected. They are just asking for CfD because it’s a common way to buy there- if you prefer to sell via L/O, then tell them that’s how you sell, you’re in charge here.

I do suggest you buy using CfD in MN. We took Bronchick’s buyer’s contract to our attorney and he suggested we use the standard MN CfD contract: judges would be happier (should it come to that) and it already covers all the points mentioned by Bronchick that a buyer should have.

Remember, if they stop paying, you evict on L/O (takes about a month), you foreclose on CfD (could take 8-9 months).

good luck, I hope to see you in Atlanta again,

Anne

Re: Can anyone explain difference - Posted by MoniqueUSA

Posted by MoniqueUSA on February 06, 2002 at 08:45:46:

Lori in Minnesota,

Hi there.

On a L/O, the buyer pays rent to you until they are able to qualify for a mortgage to purchase the property. They rent until they can buy.

On a CFD (also known as Agreement for Deed, Land Contract, and sometimes loosely referred to as Owner Financing), the buyer pays a mortgage payment to you until they are able to qualify for a mortgage to refinance the property. They own (or to be more technically accurate, they have equitable interest) until they can refinance. In fact, you don’t have to require that they refinance. You could sell someone a house CFD on a 30 year note, and never require that they refinance to pay you off. It’s my understanding that CFDs are quite popular in MN.

Typically, we would sell on a L/O to someone who has 3-5% to put down and we would sell on a CFD to someone who has 10% - 15% to put down. This is because it requires more effort in most states to get someone out who is on a CFD than it does for a buyer who is on a L/O.

MoniqueUSA

Re: Can anyone explain difference - Posted by Lori in Minnesota

Posted by Lori in Minnesota on February 06, 2002 at 15:13:28:

Monique thanks… so if I have an option to sell a house that carries a monthly mortgage of $2K, using a CFD, I would be giving the buyer ownership of the house and every month when he pays $2K his money pays down the principle and interest, just as if he owned the home? My profit would come by raising the monthly amount to something above $2K? Would I then put the title in a trust and make the buyer the beneficiary?