Posted by Stacy (AZ) on April 22, 2000 at 23:38:16:
I agree that a lease/option allows more control. But, getting 10% down (or more) on a lease/option is very rare. My goal (and possibly Scott’s) is to get my cash back-out, as much as possible, and get a cash flow going. I like the idea of going to the mailbox, without the worry of being a landlord (L/O).
If Scott put 10% down on his low purchase price, and sells 10% above market, with 10% down, he should get most of his money back, if not all of it. Then he’s got his cash back for more deals, and is getting “gravy” cash flow, maybe for free.
However, this strategy is much more scary in states that treat land contracts as mortgages, and force a long foreclosure process. In AZ, foreclosure of a land contract is very close (in time) to evicting a tenant. So, maybe you can see why L/O is not necessarily foremost in my mind.
I put together a fairly complex spreadsheet to analyze this type of deal, and was pretty much awe-stricken when I saw the cash-on-cash returns. Until then, I assumed the returns would be mediocre.
The advantage over selling a note at close, is that you don’t have to accept a large discount when the loan gets refinanced, or otherwise paid-off in the future. This is, of course, if you are willing to wait for the refi. Having no, or low, cash left in the deal makes it much easier to wait. Anyway, good ideas on this thread. Any one of these methods is good, but it depends on your personal goals as to which is best.