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Old 09-15-2008, 02:19 PM
 
Location: NH and lovin' it!
1,780 posts, read 3,291,282 times
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Tony23,
Something to look out for, indeed! Thanks for the tip. Maybe this is not the way to go, but at least I learned something!!
J
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Old 09-15-2008, 03:12 PM
 
Location: Pawnee Nation
7,525 posts, read 14,555,884 times
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Quote:
Originally Posted by brokerdave View Post
It is not Rent-to-Own, that is used with tangible property. You ever noticed you don't sign rental contracts for real estate? You sign Leases...
I see quite a few month to month rentals, both with and without a lease. In fact, it is common when you have a possession date different from the closing date. The occupying party will pay the ownership party rental until a specific event occurs (the new house is built, the people move in prior to closing so they don't have to move twice, etc).

Quote:
Originally Posted by brokerdave View Post
The term is Lease Option Contract. This means you would be in contract with a lease with option to buy, typically by a predetermined date for a current market value of when the contract was drawn up. The monthly payments go towards a down payment.
This is partly true. There are Lease Options where you do, in fact lease with an option to buy (it is an option, you do not have to purchase), a Lease Purchase (where you are contractually obligated to purchase by the end of the lease), then you have a Contract for Deed (where you purchase today and the seller acts as lender).

Quote:
Originally Posted by brokerdave View Post
The advantage to this is that after a 1-2 years a bank would let you "refinance" into a mortgage when you finish the purchase part of the contract.
The end of the option can be at any point. Typically it is 3 to 10 years. As in anything in Real Estate, it is all negotiable.

Quote:
Originally Posted by brokerdave View Post
Be careful with this though, I have a friend who knows a guy who makes a living using Lease Option Contracts to keep peoples deposits and evict them.
If they violate the terms of the agreement, he really has no choice except to allow squatters.

Quote:
Originally Posted by brokerdave View Post
The laws regarding this can vary from state to state, so make sure you have a real estate attorney look over the contract before signing anything, in this case I don't think a real estate agent is sufficient enough to approve the contract..
In many states, Contracts for Deed MUST be filed at the courthouse and eviction proceedings must take place, just as with any mortgage. Lease options are simply leases and are not required to be filed. Lease Purchases may be filed but frequently aren't, but they can be hard to enforce.

Usually failure to follow through on the terms of the contract will result in all moneys already paid being considered rent and forfeited.

I have frequently sold properties on a contract for deed where the terms were 10% down, balance at 12% interest amortized over 30 years with a balloon payment in 7 years. Obviously on a $50,000 house, coming up with $5,000 for some people is impossible. At that point I might ask them to pay $500 at signing, and $4,500 paid over 3 years at 14% interest as a second mortgage.

the Second mortgage would be a payment of $153.80 per month for 36 months, the First mortgage would be a payment of $462.88 per month for 7 years, and a balloon payment of $26,221.19.

What this does is gives the buyer a chance to rebuild their credit and build equity (at 7 years the buyer has better than 50% equity plus any appreciation and the value of any improvements they may have made). With 50% equity (minimum) and a concerted effort to clean up their credit, a local bank should have no qualms about mortgaging the house.
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Old 09-15-2008, 04:50 PM
 
Location: Fort Myers, FL
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the eviction and squatters problems are really state specific. for example in Michigan it can take months to evict a tenant. here in Florida, it takes 14 days.
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