Financing / Lease Option Question - Kinda Long - Posted by Kevin - WA

Posted by Kevin - WA on April 29, 2007 at 23:47:28:

Yes, I agree in general. However, around here things are still selling for within a few bucks of asking price, and the median sales price is still going up, albeit less quickly. Things are just staying on the market longer, and mine is a FSBO and they usually take me about 30 days to sell in a “hot” market.

We shall see, though. The prospect viewed the place today, liked it, so now I have to get creative and get the deal done.


Financing / Lease Option Question - Kinda Long - Posted by Kevin - WA

Posted by Kevin - WA on April 28, 2007 at 22:11:14:


Thanks in advance for your help on this. I will share a bit of background.

I have a house that I have been having trouble selling. It is a nice house in a nice neighborhood, but the market has slowed. I am sure it will sell, but it is empty and costing me $1600 a month to hold it. I have to make my third vacant stroke on it this week. I got this house in 2005, lease optioned it twice, had those deals fall apart and have gotten it back twice. I took $15,000 in option fees on it so I am OK financially, just do not want to hold it empty for a protracted amount of time, and don’t want to start discounting it and leave money on the table. It is priced fairly, just a slow market.

Now, I got a call today. Lady was divorced, is self employed for 1.5 years, and can’t get a bank loan. She is very interested. One of her issues is that she is looking to “buy with owner financing” so she can benefit from a tax deduction for the mortgage. I would prefer to do a lease option, because if this blows up in a year or so, I do not want to have to foreclose to get the deed back. Plus there is a first and second mortgage on the house, so I don’t want to have a problem with possible due on sale, etc. I have it in a land trust currently. Again, though - I don’t want to give up control of the house until I can walk away from it.

My question is “is there a way that she can take a tax deduction as a tenant in a lease - option situation”, or is that not workable?



Re: Financing / Lease Option Question - Posted by Brian (WA)

Posted by Brian (WA) on May 01, 2007 at 15:31:22:


As far as I know the tax deductions she is looking for cannot be taken by a renter. In a lease option she would still be considered a renter. A lease agreement and a lease option agreement should be two different contracts.


Re: Financing / Lease Option Question - Posted by Rich-CA

Posted by Rich-CA on April 29, 2007 at 23:39:48:

A slow market is a sign that the true market prices have fallen, whether or not asking prices have dropped to match this. If you don’t want to hold the property vacant for a long time, you will need to drop the price.

You don’ have any “money on the table” until you sell the property. Everything is “worth” exactly zero until you have a buyer who can close the deal.

Re: Financing / Lease Option Question - Posted by Bill Foust

Posted by Bill Foust on April 28, 2007 at 23:12:47:

I don’t think she can take the tax deduction for mortgage interest because there is none. However there may be another option. You should consult another professionaly for sure because I’m not at all possible this is valid.

Having said that, I seem to remember that the depreciation deduction is something that can be negotiated. I don’t think the IRS cares as long as it is only taken once per year per property. If this turns out to be valid, then you might able to include it into the option. I seem to recall this primarily being used in conjunction with a Land Contract, and it may not be allowed in a lease.

A Land Contract may solve your problem, somewhat. With it, you keep the deed, but she gains “equitable interest” which allows for the depreciation deduction. You would still have to foreclose if she defaulted however.

Some things to think about.