Buying & then Subject to

General Real Estate Investing
1

Hi,

What are the drawbacks if I purchase a property & the give it on Rent to Own or a Subject to Deal to a tenant buyer ?

Does this makes sense ?
Is it even possible ?
Should it be done ?
What are the pros and cons of this ?

Thanks

2

Does this makes sense ?
Rent to Own/Lease with Option, yes makes sense. Selling to a buyer via Sub2, no it does not.

Is it even possible ?
Yes, it’s possible to sell Sub2. People do it all the time.

Should it be done ?
Should you sell Sub2. No, not really unless you have no other choice. By selling sub2, you are giving up the property (the deed is no longer in your name) but you are keeping the debt. Now, if you’re trying to sell fast (motivated seller) and if you have little to no equity, then that might be the best way to go. But as an investor trying to make $$$ in this business it’s a woefully bad decision.

What are the pros and cons of this ?
No pros to me for selling sub2 and frankly, too many cons to go into great detail. Namely, though, you lose the property (and all of the tax benefits of owning it) retain the debt and have sold to someone with questionable credit to trust to make that payment and keep your credit good.

Raj

3

if you put in a l/o tenant… you keep all the tax benefits because you retain ownership. If the tenant gets financed and buys… the loan is paid off. If you sell directly through sub2… have the buyers sign a disclosure saying they know the lender can call the loan due etc.

4

Hi,

Thank you for the inputs, I was thinking more like a Lease Option.

Take a Mortgage, buy a property & then lease it to a buyer with an option to buy in the future.

Any comments on this strategy ?

Thanks

5

Lease options are questionable right now. With all the anti small investor legislation prevalent now, Texas has virtually banned them and Arizona is using unofficial guidelines:

Here is a list of five things that may violate the law and cause the judge to classify the transaction as a “disguised sale”. This is not my list, but the list prepared by a Judge in Arizona who actually co-authored Arizona’s landlord/tenant laws:

  1. Collection of more than 1.5 times the monthly rent as Option Deposit.

  2. Collection of an Option Deposit or Rent Credit to be credited to a Purchase, or to discount the Purchase as in a Down Payment.

  3. Predetermining a Purchase Price, as in delaying or disguising a sale.

  4. The Lessee also holding an option on the same property they are leasing regardless if it is one document or two separate documents.

  5. The Lessee being responsible for maintaining the property.

If the lease is not recognized by the court as a lease, it doesn’t get the benefits that go along with a legally recognized lease. If the judge feels a sale has taken place instead of a lease, the rules governing foreclosures will apply. For this reason, possession of the property will be decided by a judge in position to decide matters of title and the process can be extremely expensive. Costs can run $10,000+, not including having to pay the back mortgage payments during the life of the suit.

Lease options are a great deal for the tenant but are becoming more and more dangerous for the seller. Lookup “equitable interest”, as it often comes into play in a lease option transaction. Be careful out there.

Da Wiz

6

Anyone know the law in Canada / BC ?

Thanks

7

I know they have gun laws up the old kazoo…they probably have some RE laws, too.

Keith