im kind of new to the realestate business and i was looking for some imput for a question i have…why take out a loan to buy a house rather then leasing to own???
Well, the quick answer is… it depends.
First, is the deal a good deal? Is the market appreciating or depreciating? The strength of the deal and the local market conditions will tell you what your options are.
What kind of financing are you going to use to structure the deal?
Next, do you have someone to lease option the property? If you do, great. If not, then the question is moot.
What’s your investment strategy? Are you looking for long term holds that will grow equity and provide positive cash flow or short term holds that will provide a profit in a relatively short period of time?
I’m sure there are others, but those are just a few off the top of my head.
HTH,
Paul
sasuke,
There are many reasons that is it usually preferrable to get financing to buy a house (especially an investment property) rather than do a lease-option (lease to own). One important reason is that most lease-option sellers will demand a higher interest rate and higher sales price when doing a lease-option than when selling outright. That is because of the risk involved with lease options as opposed to an outright sale.
Moreover, if you’re planning to do a sandwich lease, you should know that these can be VERY risky. I personally know of at least 2 cases where sandwich leases went terribly bad and lawsuits were the result. Typically what happens is that an investor “buys” a property on a lease-option and then “sells” the property to a tenant-buyer on a lease-option at a higher price and higher payment. Things go along fine until the tenant-buyer wants to buy the house. Then, several bad things can happen. The original seller can refuse to sell. Yes, he is in the wrong but you will have to sue him to get the deed. In the mean time, your tenant-buyer is suing you because you’ve defaulted on your contract. What a mess!
More commonly, the original seller either doesn’t make his mortgage payment or doesn’t pay his taxes and the house is either foreclosed on or a tax lien is placed on the property. I don’t do sandwich leases for these reasons.
Mike