Lease Options and Homes on Contract

With today's credit market wound tight as a drum, it is no wonder that more and more buyers and sellers are making deals happen using seller financing. There are many ways to create a deal that works for both the buyer and seller, both of which may be in a situation where they need to make something happen. When the seller holds a note with the buyer, the buyer skirts around your typical lender that may require 700+ credit scores and a 10 percent down payment. Especially as today's consumer is strapped for cash, the down payment piece is critical. For example, in my hometown of Yakima, Washington, homes that are moving in the marketplace are in the $150,000 to $200,000 range. If a buyer were to use a convential loan to finance a home, they would a minimum of 3% down ($4,500 dollars) or more than likely 10% down ($15,000). And that's on the low end of home prices, this could be as high as $30,000 on a $300,000 dollar home. It's not that the buyers can't make the monthly mortgage (at $150,000 you could probably stay under $1,000/month), but rather the down payment, credit score requirements, and proof of income hurdles are set too high.

With a seller financed transaction, both the buyers and sellers win. The buyers get into a home for smaller than normal down payments, usually between $2,500 and $5,000. The sellers get a stream of income going forward, obviously the terms vary, but some sellers are getting a 200 basis point (or more) spread on the owner term interest rate and thier current mortgage interest rate. Plus, the principle balance is usually substantially lower than the contract purchase price of which the monthly payment is based. One of the greatest benefits of a contract home is that you can usually move very quickly to close the transaction. Where you would normally be 30 to 45 days out on a traditional home purchase, you can sometimes close in as little as 2 weeks when buying a home on contract. Sometimes you just need a little creativity to make things happen in a slow market.

Creative Solutions for selling your real estate in a down market

Another potential deal killer is the dreaded "down payment". In today's lending environment it is not only more difficult to qualify for financing, but to come up with the larger down payment minimums. If you are a real estate investor you are already looking to purchase homes below market value, either buying at a fraction of replacement costs or building them yourself. When you are able to make a good purchase you are also expanding your options as to what sort of investment will this real estate asset will become. Always try to create as many options as possible. You can rent it out, simple...as long as it cash flows. You can lease option the property, allowing the leasee the option of buying at the end of the lease term. You can try to "flip" the property and put it back on the market immediately. Or, you can combine multiple strategies and come up with very creative solutions for yourself and potential home buyers. A strategy I am using currently is to market a recently acquired property with "100%" financing. If the buyer has decent credit and with interest rates at historic lows, your only remaining obstacle may be the down payment. Well if you're into the property right, you as the seller can hold the down payment in the form of a promissory note with the buyer, which would have a second position lien interest. The bank obviously will have the primary or first lien. This removes the hurdle of the buyer coming up with a large down payment. It will also free up some debt load on your end, while creating a cash stream in the form of the note. I like these types of situations, because it works out handsomely for all parties involved.

A Creative Real Estate Deal - Lots for Duplexes

Today I worked on a deal that is a bit unconvential. Here's how it works. My wife and I purchased a lot back in 2008 and then subdivided it into two building lots. So now as we are looking to sell we found a developer in town who is looking for buyers of his "to be built" duplexes. They are actually zero lot line homes, so you could end up selling them individually as well as renting them. The developer is selling them at somewhat of a discount, so the buyers are getting a good deal, the developer is making his money from the land. He purchased a sizable chunk of land and then short platted it to build these homes. Anyway, he is giving me full market value for each lot I have, while I in turn am going to buy 2 homes, or 1 duplex from him. The purchase and sale will take place simultaneously, so I can take some of my sales proceeds to put down on the homes. The developer makes a bit of money on the construction, but mostly in the land. He is even paying all of my closing costs. It works out for everyone, especially in todays market. My wife and I plan to either lease option the homes or rent them out for a few years. They are in a great location, which is always key, so we believe this is a great deal structure to create a win win situation. If anyone else has a similar deal structure or has completed one in the past, I'd love to hear about it.

Justin
Real Estate Investing Resource