Ideas...Rent property or try to sell? - Posted by Scott (ATL)

Posted by Scott (ATL) on March 14, 2001 at 18:58:54:

Ahh…I haven’t brushed up on land contracts or Agreement for Deed but I must be missing something. Typically you would write a note for the owner financing then write up a mortgage so the house would be used for note collateral. Correct? Now if you decide to do a land contract/AFD what is the advantage? In our case we wouldn’t own the home free and clear (not sure if this comes into the equation) so the bank would have the first mortgage and if we owner financed it we would create a 2nd mortgage I assume or do a AFD?

I guess I need to read up on land contracts. In our current situation my partner is mainly worried about his name securing the current mortgage. If the home (deed) is under our company name as well as insurance etc. then the liability is with the company. Yes, if anything went wrong as officers we could be named in a lawsuit but our LLC should protect our individual assets as long as all the owner financing or lease option paperwork is in order.

Thanks for all the feedback!


Ideas…Rent property or try to sell? - Posted by Scott (ATL)

Posted by Scott (ATL) on March 13, 2001 at 20:35:38:

My partner and I currently have a property that was purchased for renovation. I didn’t really like the deal but felt some profit could be made. However, not enough for me to do much of the work (He wanted to do the work himself ? Capable but he has a full time job like myself). My partner felt differently so I suggested he go ahead and take it on (We’re using company money for the rehab as well as some conventional financing).

Well, it has now been 8 months and we still have the property (and it isn?t on the market). We’re not upside down yet but even if he finishes the remaining improvements in the next two months we’re not going to make a dime. We’ll break even. This is exactly what I envisioned.

Anyway, the conventional financing and deed are not under the company. They are actually under my partners name. We have planned on quit claim deeding the property over to the company but I figured there was no rush. As for the financing, it has to be under one of our names because no one will give credit to the company. So, my question is this…I feel that finding a renter is going to be the quickest option and we could refi the property to pull our cash out (We’ve got to pay uncle sam very soon) and make a decent cash flow $200+. Since we’re probably not going to get top dollar for this property right now I think renting is the best way to go. And even if we could sell it next week someone will probably need at least 6 weeks to close. A more likely scenario is a sale in 2 to 3 months. I’d rather not loose the income!

In order to refi one of us would still have to hang on to the note (meaning it is on our credit report) and neither me or my partner really want to secure the note. We would like to stay unencumbered so that we can move into other properties.

Any thoughts or suggestions about this scenario? I’m looking for any kind of advice! Thanks in advance!!

Re: Ideas…Rent property or try to sell? - Posted by Steve-Atl

Posted by Steve-Atl on March 14, 2001 at 08:07:38:

Consider selling on a lease option. You get non-refundable option fee plus a premium rent. If they don’t exercise their option,…great! You get to do it all over again.

Also consider selling with owner financing using an Agreement for Deed. You get a bigger down payment than option fee and you make a spread on the financing.

In both cases, you have income to offset your underlying financing. With leases lenders generally give credit for 75% of the income, but with an AFD contract its 100%.

Re: Ideas…Rent property or try to sell? - Posted by Scott (ATL)

Posted by Scott (ATL) on March 14, 2001 at 08:24:27:


I understand the lease option but “Agreement for Deed”. This is a new one for me. Sounds like we sell the property and carry the financing but the Deed is not transferred until what, a specified condition occurs?

You then mention that a lender will typically give 75% of lease income where as AFD typically 100%. I like the sound of this…You mean if we did a AFD that we could refi 100% of the note value thus pulling out all our cash?

The only thing I probably have to convince my partner of is to not worry about having the note secured by himself. If income is being shown to offset the note and he then needs a personal loan I would assume that most lenders would be fine with this? Any thoughts?

Thanks for the feedback!!!

More on AFD - Posted by Jim Kennedy - Houston, TX

Posted by Jim Kennedy - Houston, TX on March 14, 2001 at 18:14:34:


An agreement for deed can be (and usually is) constructed so that the buyer receives the deed only after the ENTIRE purchase price has been paid. However, an agreement for deed can also be constructed so that the buyer receives the deed after a SPECIFIED PORTION of the purchase price has been paid.

Example: Seller owns a free & clear property worth $100K. Seller is willing to carry a 1st as long as buyer puts down 20%. Buyer only has $5K for down payment, so seller says, ?OK Mr. Buyer, I?ll accept your $5K now and let you take possession of the property. But I?ll retain title until you’ve paid your loan down to $80K, at which time I’ll give you a deed to the property.? They then draft a contract spelling out the agreed upon terms and conditions. Once the buyer fulfills the terms of the agreement for deed, the seller then transfers title to the property and carries back a first for $80K. At this point, the agreement for deed has been satisfied and is basically extinguished, having been superseded by the deed and debt instrument (mortgage or deed of trust, depending on what State you’re in).

One thing to keep in mind is that once the deed is transferred, the rules for foreclosure are generally different.

By the way, an agreement for deed is called by different names depending upon the area of the country you?re in, but basically the concept is the same. It can be called a land contract, contract for deed, contract for sale, agreement for sale, agreement for deed, articles of agreement for warranty deed, installment contract, installment sales agreement, installment land contract, installment sales contract, installment land sales contract, conditional sales contract, bond for deed, or bond for title. The laws governing agreements for deed (or whatever they’re called in your area) vary from state to state.

Hope this sheds some more light on the subject.

Best of Success!!

Jim Kennedy,
Houston, TX

Re: Ideas…Rent property or try to sell? - Posted by Steve-Atl

Posted by Steve-Atl on March 14, 2001 at 10:19:30:


You are correct. Under an AFD, title is not transferred until you are paid in full.

On the percentages, I’m referring to the credit a new lender would give you for the income you recieve from the lease option or AFD. It just means you don’t have to get a loan out of your name to do the next deal, not the amount of money you can get on a cash-out refi.

Good Luck!