Re: Lease Option vs. Land Contract - Posted by Russ Sims
Posted by Russ Sims on June 12, 2000 at 11:13:48:
Yes, it’s easier to get someone out of a house when you need to evict, rather than foreclose. But when you sell on a L/C you can genuinely sell the benefits of home ownership (you’re selling ownership vs. tenancy). It’s also possible, in my limited experience, to get larger down payments with a L/C. It’s not a stretch to ask for 5 to 10% down whereas with a L/O sometimes 3% can be a challenge. The other drawback with selling by L/O is that you are somewhat bound by local lease rates. You can’t really ask 1500/month for a home that would lease for, say, 1100/month. With a L/C you aren’t competing with rentals: you’re generally competing with mortgage lenders who are charging 10,11, and 12% for C and D borrowers. So it’s entirely possible to sell by L/C, charge 9.75 or 10% interest, and see a monthly cash flow that is 100 to 200% higher than the same property under a L/O would fetch.
It is possible to set up a “sandwich” L/C scenario very similar to what you are doing with your L/Os. You purchase properties “subject to” existing loans and resell under L/C terms.The principal is the same as the sandwich L/O but the cash flow is greater.