The question boils down to… - Posted by Jim Beavens
Posted by Jim Beavens on April 07, 1999 at 13:27:37:
I think the whole reasoning behind not wanting to give performance mortgages is the simple principle of putting yourself in a position where you can’t lose (as LeGrand would say). However you’re probably right that it might make more sense to do this on the first few deals to “grease the wheels” as we get started. I’m just a little worried that I might then start to rely on this technique to close deals, as opposed to backing off and trying the L/O route.
In fact, I think that’s the question that this whole discussion boils down to, which I would like some resident experts out there to sound off on:
If you have the choice of (1) obtaining a deed “subject to”, with the caveat that the seller demands a second performance mortgage to protect their interest, or (2) obtaining a Lease/Option on the property, which would you do, and why?
Here’s my initial thought: If your exit strategy is to L/O the property to a new tenant/buyer, then buying with a L/O is probably sufficient…you don’t need a deed to do that. However you should be able to get more down payment money from an actual buyer when you sell on a wrap, which for all practical purposes DOES require a deed (Bronchick says this is a gray area, which is enough for me to stay away from such a situation).
So if there’s a big difference in what you could get as down payment vs what you could get as option consideration, then it might be worth it to give the seller that performance mortgage. There also might be a big difference in what you could get for a loan payment and what you could rent it out for (my uneducated guess would be that both of these situations commonly occur in the higher-end houses).
Any other thoughts on this?