Subject To or Lease Option - Posted by Danny Bailey

Posted by Soraya(SanDiego) on June 03, 2000 at 08:29:47:

Is Ohio a Trust Deed state or a Mortgage state?

A Performance Trust Deed (or performance Mortgage) rather than securing money loaned against the property secures the performance of the property owner.

In the example we are talking about the performance trust deed makes sure the property owner will allow you to exercise your option to purchase. If the property owner refuses, you can foreclose on the property.


Subject To or Lease Option - Posted by Danny Bailey

Posted by Danny Bailey on June 02, 2000 at 18:02:33:

The owner has a property that has little to no equity. $74K is owed on it and the comps are just that $74K. Would it be better to Lease Option this property or offer up a subject to deal? The sellers are motivated to move this house and are interested in my interest to buy.

You guys always say “Get the Deed” so is that what I should try to do?. Lease Options don’t get me the deed but taking subjet to with a land trust does.

I want to sell it with owner financing or I may Lease Optiion it out to a tenant myself.

You thoughts and opinions please.

Thank You


I disagree with “Always”… - Posted by TRandle

Posted by TRandle on June 03, 2000 at 16:43:26:

I don’t think it’s always prudent to own a property. If you make promises to pay this owner’s note, then you need to make sure you will always be in a position to do that. You don’t mention rental rates. What happens if there’s a 20% decline in value or rental rates? Do you still want to own it then?

If you lease option the property for a maximum of twelve months (with however many renewal periods), you can always reassess later. And it’s not difficult to get someone who is already in a L/O situation to give you the deed later, especially after you’ve proved performance.

So, I guess my opinion is that it depends on factors you haven’t mentioned like your local market, your financial capacity, risk tolerance, etc. A sandwich L/O can give you close to the same amount of control with less risk in no equity situations. Anyway, give that some thought…

ALWAYS try to get the deed first!! - Posted by Soraya(SanDiego)

Posted by Soraya(SanDiego) on June 02, 2000 at 23:21:48:

When you have the deed, you have more control.

If the seller does not want to give you title while remaining responsible for the loan, do a lease option.

If you do a lease option make sure you have seller sign a performance trust deed and record it and have seller sign a grant deed or warranty deed that will be held in escrow until you or your tenant buyer exercises the option to purchase.

Otherwise you may have to sue the seller for specific performance to get him to sell you the property when you want to exercise your option. Does it sound like I have been there?


Re: I disagree with “Always”… - Posted by Bud Branstetter

Posted by Bud Branstetter on June 03, 2000 at 23:06:25:

You seem to be saying that to own the property you have to promise to pay the owners note. The idea of buying subject to provides you title without the legal obligation to personally pay the owners note. If morally you feel responsibility to pay when the value goes down 30%, like it did in Texas in the '89’s, then you should not buy subject to. Making sure that the former owner understands that I am not promising him anything is the extent of my moral responsibility. I don’t see a risk when buying subject to using the land trust. Options are acceptable because you can’t get the owner financing and the title. But if I can pass on to a buyer non-qualifying financing I will probably get a larger down payment, and maybe a higher payment. The risk on low equity property is that you put too much of your own money into downpayment or fixup.

Re: ALWAYS try to get the deed first!! - Posted by Ben (OH)

Posted by Ben (OH) on June 03, 2000 at 08:06:02:

How does a performance trust deed work?

Re: I disagree with “Always”… - Posted by TRandle

Posted by TRandle on June 04, 2000 at 24:55:55:

Yes, I am referring to the moral aspects. If you’re able to persuade someone to give you title without some sort of verbal “promise”, please explain how. How do you make “sure that the former owner understands that I am not promising him anything”? Perhaps I’m wrong, but it seems that your post implies that all of us who are purchasing subject to’s should NOT feel any moral responsibility to the original owner. So, if the investor is facing negative cash flow because the property was purchased with no equity and the market suffered a small decline, it’s the original owner’s problem again? From reading many of your other posts, I don’t believe that is your stance and I don’t believe you would put yourself in that position.

I agree that taking title in a land trust subject to existing financing is fairly low risk and it provides much better exits. However, in Dan’s post, he didn’t state rental rates, local market conditions, his experience level, or many other factors necessary to adequately respond to his initial question. I don’t believe that “Always get the deed” is the appropriate response in every single situation, especially when the LTV is 100% and we don’t know the anticipated exit strategy. The intent of my post was to bring up risk minimization issues that Dan may not have considered.