How do I reel this one in?

We are new investors, and I feel like we’ve caught the big one, but I don’t know how my fishing pole works! We are in the process of purchasing a HUD foreclosure. We started advertising to Lease/Purchase the house and we’ve found a buyer except they don’t want to lease/purchase, they want to buy. The problem is, they don’t have verifiable income (the wife is an “entertainer” of some sort that is very lucrative and the husband makes a small verifiable income) but they do have good on-time lease payment history. We are financing 95% of our purchase price of the house and they are willing to purchase it from us on some sort of owner financing for $27K more than we are paying for it after factoring in our closing costs and planned (and promised) repairs. I don’t know how to structure this deal. Our plan had always been to lease option the house until the buyer qualified for a conventional mortgage, but it doesn’t look like these guys can ever qualify. Any ideas?

Do they just want to rent or do they really want to qualify. f they want to qualify do the lease option and use your/or find a mortgage broker who will get them qualified over the term. They have many programs available like no income verification loans,etc… Have you checked there credit scores? Either way Lease/Option or Lease Purchase, you will hold the property for the same amount of time before they qualify (in most cases). If the mortgage broker can get them qualified, and they truly want to get qualified, after a period of time you end up in the same boat - the sale of the home at the price you want. In the Lease/Option you still run the risk of them not taking the option, but if they really want it and work to qualify - it shouldn’t be a problem.

good luck

Thanks. We were using “Lease/Purchase” and “Lease Option” interchangeably, so I’m not sure what the difference would be. We will be checking their credit scores when we receive their application, but I wanted to know what our options are.

I’ve sent a message to our mortgage broker to see if he’ll meet with them so they can find out whether/how they can qualify. I’ve also asked him about our seasoning requirements.

I considered giving them a wrap-around mortgage (if they’re legal in Texas), but I don’t think I’m comfortable being in that kind of financial situation since we’re so new at this. Plus, getting the cash out of the deal sooner rather than later is very attractive.

Again, thanks for your recommendations.

The Lease Purchase is renting the property for a period of time. Then the home must be purchased. The Lease Option they don’t have to purchase (take the option). Either way, you should make sure your costs are covered with the monthly payment and a little extra for cash-flow. Get a non-refundable payment up front if possible. If they don’t take the option, you still made a little money barring any major repairs. I would have something regarding repairs in the contract such as that anything over x $'s will be added to the option price, anything under x$ you will take care of.

Others here may be able to explain it a little better than I can or have some other idea’s

Good Luck

Thanks for the clarification.

Wraps are legal in Texas. You lender will likely not care but it still violates the DOS. They can get all the benefits of home ownership with Gatten’s Equity Holding Trust. Do you want to use your credit to get what amount of cash flow? What do they have as cash to put down?

I told them the least we’d take is 5% and that was ok (we’re putting down 5% on a lower price). If we accept 5%, between our original purchase closing costs and the costs of repairs and upgrades we are doing we’ll still be in the hole for around $5K (I didn’t think through the numbers before I answered them - we ARE new at this and I did tell them I’d have to check into how all this would work before we committed to anything). If we were able to sell it to them outright, we’d be making around $27K after expenses. We could sign them up for a 6 month lease option with a 5% option fee and require 10% downpayment on the wraparound so that our costs are covered. I also figured we would need to charge them at least 1% additional interest for a wraparound.

You’ve really piqued my interest: what is Gatten’s Equity Holding Trust and how does it use our credit?

I believe it Bill Gatten - he has a website I believe regarding equity trusts & cal-pac land trusts. I don’t know much about trusts but i think the basic concept is that 1 creates a trust - puts the property in trust -(i think this prevents the property from any future encumbrances) - when property is sold - the trust distributes the funds to the beneficiaries per the contract.

maybe i’m all wrong, I’m sure someone here is a wiz on them tho. Post a trust “?”. to get an answer.

good luck