What should I offer? Possible lease/option... - Posted by Byaka_PA

Posted by Bill Gatten on November 08, 2000 at 15:06:33:

In contacting a potential PACTrust seller, you merely indicate that you are looking for someone who would be willing to remain on the existing loan “for a while.” You need to be careful about trying to be too “explanatory” in your approach. As Claude Diamond says: “Sell now…Explain later (great advice!).”

With the PACTrust in your pocket, the seller merely needs to agree to remain on the loan and let you take over 100% of all maintenance, repairs, upkeep, property tax, insurance, mortgage payments and management of the property. The system you will use to do all of that, and the way you will best protect his interests, is not important until he’s ready to make a decision.

As far as the benefits are concerned, you make them all those that are HIS: No due-on-sale compromise, no transfer of title to you, no potential for eviction problems should anything ever go wrong, no potential for you personal or legal problems affecting title (BK, Divorce, Tax Liens, Creditor judgments, death or incapacity, etc)…and quite a few more.

If they insist on having cash up front, here are a couple of things you (they) can do:

  1. The seller can refinance for the maximum LTV before commencing the PACTrust and put the money in his pocket while you take over those payments.

  2. You can cross collateralize the remaining equity with another property that you own, and the seller can then sell that note to someone at a discount (while you agree to pay him the undiscounted portion at the PACTrust’s termination).

  3. You can do #2 above with personal property as well (i.e., with business equipment, a car a boat, etc.) with a U.C.C. filing.

  4. You can advertise for a buyer who will come in with enough to cover all closing costs, plus all or part of the additional cash that the seller wants (the fact that they might not wish to qualify for a loan doesn’t mean they would make a reasonable down payment).

  5. You could set up an LLC and bring in a partner with the cash need, and “equity-share” with him or her (sharing in all principal reduction, appreciation, positive cash flow, up-front moneys, etc.

  6. You could collaborate up in the same manner with the seller…in lieu of the cash requirement.

None-the-less, remember above all that the PACTrust is not an alternative to something else: it the way to do that “something else,” but with the least amount of risk, subterfuge, chance, trust, etc. The PACTrust’s primary benefit is the transfer of tax benefits to a tenant who will gladly pay more than Fair Market Rent for the benefits and incidents of homeownership.

For more details, click on the banner ad above (if the PACTrust banner ad is not there, click on ?Refresh? or ?Reload? a few times it’ll come up).

What should I offer? Possible lease/option… - Posted by Byaka_PA

Posted by Byaka_PA on November 06, 2000 at 12:46:33:


I called a FSBO ad in the paper and here is what I learned about the property. The seller asks $118,000, but would actually like to get his money back, which is $116,000. His payment is $1124 PITI, and he has virtually no equity in the house. He needs to move out by December since at that time he will start making payments on another property. He is separating with his girlfriend. After hearing about lease/option, he said he would consider it, but for 1 year only. Comps in his area showed that 2 similar properties sold for $115,000 in July and $117,500 in May.
Do you think this is a possible deal? What should I offer? I know both the payment and the asking price are little too high, but I am sure closer to December the seller would be more willing to negotiate both (say, give a few hundred purchase credit out of the $1124 payment). Besides, I believe that the property can be sold on a lease/option for around $125,000 a couple of years from now…
I am just starting out, so any advice would be appreciated.
Oh, one more thing, I live in PA, where property transfer tax is 2%. So, during the future simultaneous closing I will be paying 1% twice… Anybody knows if there are any ways of avoiding this?



A PACTrust answer - Posted by Bill Gatten

Posted by Bill Gatten on November 06, 2000 at 20:14:31:

Do a PACTrust - save the transfer tax and command a much higher payment from your resident beneficiary. However, as JohnBoy said, don’t even consider for less than three years. You have to have a running start on some appreciation and principal reduction, and one year wont do it.

Re. the xfer tax: with a PACTrust there is no sale of the property: instead, the owner puts it into his own land trust in his own name as beneficiary, and transfers only to his own inter vivos trust (looks like a simple family trust) and then LATER (next day) silently names you as a co-beneficiary(secretly, anonymously and unrecorded). He gives you, say a 90% ownership, agreeing to forfeit his 10% at termination. You then advertise for and locate a 3rd beneficiary to live in the property, whom, in exchange for all tax benefits and other incidents of homeownership, agrees to make all the payments and handle all maintenance and repairs.

By doing it this way, the seller is protected from DOS violation, as well as being protected against any liens, suits, judgments, BKS or marital problems that could befall you. Much safer than a lease option for him and you (and the 3rd beneficiary who lives in the property, sharing the future appreciation and principal reduction with you while he covers all the costs). And…you’ve avoided the transfer tax dilemma.

This is what you call your true Nothing Down, No Bank Qualifying, No payments, No expenses, No due-on-sale violation, No credit Risk, No legal exposure kind’a financing deal.

Bill Gatten

Re: What should I offer? Possible lease/option… - Posted by JohnBoy

Posted by JohnBoy on November 06, 2000 at 17:29:43:

Since there is no equity in this deal the seller would have to come out of pocket at closing if he agreed to give you $200 per month in rent credits with your rent being the same as his payment on the property. His principle going toward the loan balance is probably less than $100 per month since this is a newer loan.

Instead of trying to get a rent credit, L/O the property from him with the option price being the balance of his mortgage pay off at the time you exercise the option. This will give you any principle paid down on the mortgage each month until you exercise the option.

Also, ONE year is NOT enough time. You shouldn’t settle for less than THREE YEARS MINIMUM! You can structure it for one year with the right to renew for another two 1 year terms.

If he doesn’t want to mess with a L/O for more than one year, than tell him you will take over his mortgage for him by assuming his loan “subject to”. He deeds the property over to you and you just take over his payments and he doesn’t own the property any more. Of course the loan will remain in his name until you refinance or sell the property and pay it off. He just won’t own the property any longer, you will!

If he won’t budge for more than one year, then, NEXT!!! Have him call you should he change his mind.

Re: A PACTrust answer - Posted by Linda

Posted by Linda on November 08, 2000 at 11:17:15:

Hi Bill! I am a newbie with a couple of questions a bout the PACTrust. How do you approach the seller about the idea of the PACTrust? How could you explain the benefits to them? What kind of options could you give them if they want some money for the deal? I really like the idea, but I want to understand completely how it works and how to sell the idea. I find this all so facinating! Thanks in advance for any responses!