Creating a note from a lease-option? - Posted by Paul Strauss

Real Estate Investing Retail
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Posted by Jon Richards on February 05, 2001 at 22:10:02:

Paul

Yes, you can create a note with a balloon payment and then sell part of the note to generate the cash you need. There has to be at least 50% equity in the property.

For more information on how this works…go to www.create-a-mortgage.com. This is a short answer to a complex strategy. But it is cool and it works well.

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Creating a note from a lease-option? - Posted by Paul Strauss

Posted by Paul Strauss on February 05, 2001 at 21:31:49:

If I have a lease-option on a property, can I offer ‘seller-financing’ and sell the property taking a down payment, creating a note for the balance, selling the note to raise the cash to excercise my option? The idea being that there would be spread between my option price and the price I’d be able to get for the note? Having never done this, yet interested- could anybody provide me with some advice?

Paul

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Re: Creating a note from a lease-option? - Posted by Michael Morrongiello

Posted by Michael Morrongiello on February 06, 2001 at 18:48:47:

Paul:
Can this be done? YES, Will there be some issues to be concerned with? YES

Here is what you inted to do, if I understand you correctly. You have a legitimate option to purchase a residential property from its owner at one sales price, and then you wish to “sell” this property (that you do not yet own) to a “retail” Buyer who will be purchasing the home to occupy as their primary residence, at a substantially higher sales price, and you wish to use SELLER FINANCING to accomplish that sale to the “retail” buyer with ultimately the seller financed note being sold off to generate the CASH necessary to allow you to exercise your option price with the property owner.

The main issues that will come into play are:

  1. Is the “retail” sales price justifiable?

  2. What will be the credit worthiness, and stability of the proposed “retail” buyer? and What amount of cash will be put at risk by that buyer?

  3. Is there enough “spread” between what you can excercise your option price at and what you can sell the home for to the “retail” buyer given the fact that that the under the best of circumstances, a legitimate note funder will NOT fund anymore than around 80% (LTV) loan to value of the “retail” sales price.?

  4. How long have you had the option to purchase the home? - if it is relatively short term, then the “seasoning of interest or ownership” issues crept into play.

So, given the issues and how they are dealt with all in all YES, this type of a deal can be put together.

To your success,

Michael Morrongiello