My neighbor is moving out of town and wants to do a lease option. I want to work out a lease option assignment but they are behind on their mortgage more than 3 months. They are basically in pre-foreclosure. I have 2 sure tenant/buyers lined up but is this something I should still pursue? if an LOA will not work, what other creative financing option can I use? Thanks in advance :help
The best thing to do is for you to pay the back payments to make it work.
Thanks for the advice.
Where is the home located?
In Albuquerque NM
Homes are very cheap in Albuquerque. So are you going to bring up the back payments so a deal can be made?
The last thing you should do is pay any arrears the homeowner has accumulated. What else do you know about this property? What’s the value? What’s the mortgage(s) balance? What’s the PITI? What is the rent you can expect to receive?
Way too many unknowns before you should start throwing money at it.
Why are they doing a lease option instead of just selling it? If they owe too much for a cash sale, then I think it would be better to buy the house using seller financing, by doing a wrap around mortgage or subject to, but where you get the deed. Then, paying to bring the loan current will make more sense since you will be getting the deed.
I assume you already ran the numbers to verify there is a spread between the mortgage payments and market rent, and that the payoff amount for the mortgage is not more than the house could be sold for within a reasonable lease option period. (so that it could be assigned to another investor wanting to do a sandwich LO, as well as a retail tenant/buyer)
You want to make sure the numbers are good and leave room for your fee, so that it is still a good deal for whoever you assign it too.
If there’s some equity. SUB TO. Control the house and make the payments. Don’t do a seller financing deal unless the seller allows you to make the payments directly to the lender. Get ride of the current owner and his control. What makes you think that he will make the payments to the mortgage if you send them to him.
Get control… Thats the only way to do the deal.
The important part you left out is make sure the seller does not tell the bank that he did a SUB 2 because the lender/bank could call the loan due, no matter what people tell you it can happen.
Half the battle is over, since the seller has already decided that a lease/option is acceptable. Give the seller what he wants and you take everything else. Don’t complicate this.
You create a sandwich lease/option. Simple. However, the back payment are the real issue here, after the total indebtedness.
How much to bring the loan current? How much is the overall LTV?
Can you get enough from a tenant/buyer to cover the arrears, collect a fee, and make it worth your time?
Will the seller bring the loan current as a condition of you doing a lease option?
I would use a performance lease/option with the seller. This way I’m only paying him, if my sub-tenant./buyer pays me.
Now, if the seller won’t agree to that, than I want the deed. Otherwise, I’m making myself liable for a house I don’t own… Forget that.
Of course there’s a lot more to either of these options, but the bottom line is you have to have control of the asset, without (legal) responsibility to pay for it (ultimately).
Consider who will handle the payments for you so that everyone knows they’ve been paid. If you get the deed, how will you secure administrative control of the loan once you take title?
How will the insurance be handled? Will you create a new policy, or leave the existing policy in place?
Will you transfer title into a trust, or just do a naked title transfer?
Will you record your option so that the seller can’t shop your offer?
All these questions to consider.