Posted by JPiper on January 30, 2000 at 02:03:57:
Allow me first to comment generally on your post. My advice to you would be that whenever you find yourself questioning the wisdom of the prevailing guru regarding some specific topic?..listen to yourself. Develop the ability to think for yourself. Develop the ability to trust what you think. Understand that at certain points nearly everyone will be wrong. Sometimes the best results will come from acting in ways that no one else agrees with. Contrariness is an attitude worth cultivating?..because it will allow you to look at the other side of things. And most of all, listen to that voice within yourself?.it?s worth all the gurus stacked end to end.
As to your specific question, to me there are only two ways to profit from a low-equity deal 1) assign the deal for an upfront profit or 2) hold the deal for an upfront profit plus a monthly cashflow. There isn?t going to be any backend profit. In light of this, situation #1 should be acquired in whatever manner is easier to remarket. It?s going to make absolutely no difference whether you have a deed or you control with a lease/option?.except to the extent that the buying public will prefer one over the other. Further, it isn?t going to make any difference to you from a risk standpoint, because you?re going to be out of the deal. (Assuming you have covered all your legal bases).
Situation #2 in my opinion would best be taken control of by lease/option, not deed. I say this because there is risk to holding a deed. One of the primary risks is that the value of the property might decline?.a situation that you will have no cushion against by virtue of the fact that there is low equity. Keep in mind that while you aren’t on the loan, you may be obligated to the seller in terms of making the payments. On the other hand, controlling with a lease/option, and writing your lease in one year increments with the right to extend, ONLY exposes you to one year of liability at a time. A drop in value as example will only cost the value of one year?s lease at MOST.
In either case, if this low equity property materializes to appreciate significantly (a fact that no one I know can prognosticate), then holding a lease/option will still enable you to participate in this appreciation (to the extent that you didn?t cut off all this appreciation through sandwiching the property). I see little advantage to holding a deed in this case?.when considering both risk and reward.
One of the factors that most people don?t look hard enough at in my opinion is risk?..but then again, risk becomes kind of a passe topic after years of steady real estate appreciation.