Hi Big-fat-cow,
Setting up a lease with option to purchase through setting up a revocable land trust (term of 2-3 years or more, whatever the investor is comfortable with) offers many advantages to BOTH the seller and buyer, who are named beneficiaries in the Trust, over the other lease option method.
Your best bet is to investigate at www.landtrust.net and read about the EHTrust from the company at the website. But I’ll cover a few points here.
A lease option by nature (at least in most parts of the US) allows the TB’er equitable interest in the property, which than in most cases requires you to FORECLOSE on the buyer (which can take 2-6 months, time in court and undue amount of stress on the seller/investor), instead of EVICT under the terms in the Land Trust and Occupancy Agreement.
:banghead
I’m not sure how you say it’s complicated, since essentially you have two documents or contracts with a “normal” lease option. One, an option contract that states a “down payment” for the option to buy later and the other, the lease agreement, which probably indicates some portion of the monthly payment will be credited towards purchase.
That’s all fine and dandy, but it still doesn’t give as many benefits to the buyer or seller as a land trust lease option. Incidentally, using the land trust method requires three documents, one the land trust agreement (which can be equated to a option to purchase agreement), two the occupancy agreement (which is again similar to a lease agreement) and three, an assignment of beneficiary agreement to place the residential beneficiary (similar to the term tenant-buyer). A fourth document may be used and that’s a power of attorney to acquire the voting rights of the residential beneficiary. Only used to exercise complete control over direction of the trustee NOT to exit the residential beneficiary, who still has beneficial rights to the terms on the trust. Basically it means you retain full control as investor, but still allow the residential beneficiary their rights as defined in the trust agreement.
I’m not saying it’s the be-all end-all solution, but it does afford many protected benefits for both parties. (like gives peace of mind to the res buyer that the monthly payments they pay out, will for sure go and pay the underlying mortgage and not rely on investor to pay it, because a third party company, chosen and directed by the trustee of the trust will be receiving the payments, paying the mortgage company, property taxes, insurance and any positive cash flow will be sent to the seller/investor. How’s this for another benefit to seller/investor: POSITIVE CASH FLOW on your rent-to-own property through triple-net lease charge.) :biggrin
And how about another benefit: no worries of outstanding judgments or liens can be placed on the property, by fault of either party (seller/investor or buyer) since the title is now vested in a trust and by law a trust is personalty property. So if one of the parties was victim to a lawsuit, lien, etc, the lien can’t attach to the trust’s beneficiaries and can’t be broken up or divided to satisfy that lien, judgment, etc.
If you’ve never had a problem with the current lease option method and you get enough TB’ers to sign on the agreement, than you’re fine. I’m not here to change the way you want to do lease options and I’m not sure of how it’s treated in Canada. But all it takes is one lease option purchase out of 100 to go sour, to make an investor re-evaluate his/her options.
And trust me, it’s happened to my dad, my best friend and his investor partner, before they became acquainted with the land trust method of securing and selling property. Getting screwed badly on one deal was the impetus for them to search for a solution and for me to realize I can learn from the thousands in dollars of lost money and lost time and do it a different way, that protects all parties in the transaction.
Also, offering an equity split is your choice and how you sell it to the end buyer. If they know they get a split of equity (again whatever you can negotiate) for paying a triple-net lease AND get the tax/interest write off, they will enter into the mindset of “homeowner” and most likely want to either buy, refi or sell the property they have a beneficial interest in. 50% of all equity to you, while a res beneficiary pays you, with a positive cash flow and you get a “down payment” too…hmm…not a bad proposition. :cool
Also, if you want to tie the amount of deposit to the equity share, that’s suggested too, as someone with 5% versus 10% would get a different equity share. i.e. 10% deposit (down) earns a 50% split 5% earns 35% or 40%. It’s all relative to what is worth it to buyer and how it is rewarded to investor for investor allowing buyer in for a low deposit.
But that’s just my two cents…I’m sure there are some other seasoned investors that look at the land trust lease method from Bill Gatten as either the greatest thing since sliced bread or not worth it to learn.
Anyone else on the board here have any considerations regarding this?
Ed