Re: LEASE OPTIONS…I’M CONFUSED… - Posted by Matt B
Posted by Matt B on December 19, 2000 at 14:38:18:
Well, I don’t know if you could call me an “old-timer” (I’m only 27) but I have done a few lease option deals. I have used and recommend Ron LeGrand’s course.
If you buy a house and lease option it out, the deed is not transferring hands, thus there should be no violation of the due on sale clause. Unless there is some specific restriction associated with your mortgage stating that the property cannot be leased out, you should be fine. I have even had sellers tell the bank to send the statement directly to me, and I am the one writing the check to the bank, so they are aware that there is someone other than the owner paying the mortgage. However, the deed is still in the mortgagee’s name, so there is no violation of the due on sale clause.
The way that it helps sellers with a property that has little equity is because it is extremely difficult to sell a house with little equity. If you list it with a realtor, you must make sure that you sell it for enough to cover their commission. If your equity is small, you may end up having to ask for more than the house is worth to cover their commission. This makes it nearly impossible to sell. What bank is going to lend more than the house is worth? Very few, if any.
If the seller tries to sell it themselves, they are probably going to realize that they are no real estate expert and are going to have a hard time getting a buyer to commit. On top of that, they may also realize that the buyer may want to negotiate on price, which may either leave the seller with no profit, or not allow them to do the deal at all since they don’t have any space to budge on the price.
It is possible to show sellers that since they would just end up walking away from the deal with enough to pay off their own mortgage, that they could sell the house to you for what is owed on it. You, on the other hand can profit by collecting an upfront option deposit from a tenant/buyer (usually 3-5% of the purchase price), the monthly spread from the amount you collect in rent that is above the monthly mortgage payment, and plus you can charge a higher sales price. You can charge the higher price because the property will most likely appreciate as time goes by and your sub-tenant/buyer pays into the property each month.
I hope that helps. Make sure to buy a course soon to study up on all the specifics. I love lease options!