cashout refi on lease option - Posted by Linda

Posted by Ed Garcia on February 28, 2002 at 10:47:18:


I wouldn’t get a loan until I sign my lease/option. The reason has nothing to do with the lender or the loan. My thinking is if I’m not satisfied with the lease/option deal. Then why take out permanent financing when my intention is to sell it. I’d just as well sign an extension with the “Hard Money Lender” to buy time to market it.

I would also structure my lease/option with over market rents with the overage of the rents to go towards down payment of the purchase. If the potential buyer doesn’t exercise the option, you’re money ahead for your trouble.

Linda, because of the size of the loan, I feel a local portfolio lender is who you have to seek out. The majority of your Mortgage Brokers will want to do loans starting at $50,000. You need to find a local Small Bank or Finance Co. who is capable of being flexible in their lending policies because they are keeping the loan, rather then selling it off.

Linda, if you plan to be an avid Real Estate investor, you’ll need to establish yourself in the area and build a relationship with a local Bank that you can depend on.


cashout refi on lease option - Posted by Linda

Posted by Linda on February 27, 2002 at 23:58:14:

I am about to close my first deal.I had planned to finish rehabbing then selling at fmv (60,000-65,000)but found a buyer that wants to buy As Is. I’ll owe hard money lender 30,000 in 4 months (this can be extended), I have 10,000 in holding & rehab costs (AsIs selling price is 48,000 but there’s nothing in writing yet- buyers are “chomping at the bit” to get in). My buyers need to show ability to pay so I’ll have to lease option the property for 12 months. How do I structure the close & the loan? My avg credit score is 630, I’m self employed, always pay bills on time but have high debt ratio (partially backed with business assets.) I want my money out of this to purchase more real estate. Can I get an equity loan when I have a hard money loan? I’d hate to pay $2500 in closing costs on a 48,000 loan. it almost seems cheaper to extened the hard money. Oh, the house has “seasoned” for 7 months. The original purchase was from sherrifs sale.

Re: cashout refi on lease option - Posted by Ed Garcia

Posted by Ed Garcia on February 28, 2002 at 24:43:30:


The first thing I would like to do is give you a couple of tip on lease/options.

Lease Option Preventive Maintenance??

Lease Options are far and few between for me. I don’t normally deal with them, but I’m writing this for the benefit for those of you who do.

Usually we lease option to a buyer because they’re not financable. That may not be true in every case, but it’s more true than not. Remember for the benefit of this post, I’m talking about the rule, not the exception to the rule. With that in mind, you have to ask yourself a question. When the lease comes due, will the buyer be able to perform?

For those of you who have the roll the dice mentality and say, I’m not worried about it. Don’t waste your time reading the rest of this post, because I’m just wasting your time.
This post is written as a reminder of what your intentions are when you wrote the 2 year lease to begin with and how to make sure the deal goes as intended. What I don’t want you to do is to ASSUME that just because you have written it for 2 years that it’s automatic, because it’s not. Choosing the buyer and policing the buyer is the key.

When choosing a buyer I would have them checked out or be pre-qualified at a mortgage company of my choice. Now in doing this, you have just gotten a FREE credit report on your potential buyer. Who knows, your buyer may be qualified for a loan NOW and not even know it. I can’t tell you how many times a customer has told me that they have bad credit only to find that it was old bad credit and they were financable. What ever the outcome, you now not only know what their credit status is, but the broker can tell you what steps or what has to be cleaned up, in order for them to be financable in the 2 years.

So now, rather than HOPE that in 2 years the buyer is financable, you’re PLANNING for it. It also gives the potential buyer an incentive, because now they know what it will take to close the deal in 2 years and no longer have to wonder and hope if it’s going to happen.

The reason I picked 2 years. Is because the lending community is forgiving. Almost any borrower who is in trouble, can clean up their credit in 2 years. The one last thing I’d like to add to this post is to give you a web-site that you can visit to help your potential buyer clean up their credit. That site is In visiting this web-site you will find instruction on how to clean up their credit, along with a Credit Rapair Kit, with generic letters to send to the credit beau and much, much, more.

If your broker tells you that they don’t see the buyer to be financable in 2 years because they will not be able to afford the payment of a mortgage versus a market rents. Then again, you know this going in.

Secondly when you say “Can I get an equity loan when I have a hard money loan? I’d hate to pay $2500 in closing costs on a 48,000 loan”.
Linda, a Hard Money Loan is an equity loan. Also, loan costs are negotiable. However because of section 32, many lenders don’t even want loans under $50,000.

My suggestion is for you to find a mortgage broker to work with, who will help you structure your financing for future deals. Personally I would not make selling on a lease/option a practice. It will bottle neck your financing. You’ll feel like you sold the property but in reality, a lease/option is a nothing more than a glorified rental agreement until the option is exercised.

I hope that this post has been helpful to you,

Ed Garcia

Re: cashout refi on lease option - Posted by linda

Posted by linda on February 28, 2002 at 05:46:05:

Goodmorning! You must be as hyper active as me if your answering message boards at 12:45AM. (either that or you’ve got a great autoresponder program)

I do intend to get these people financed. They actually don’t have bad credit, just very little credit - not even a checking account. They are both tipped employees. I was hoping to create a paper trail over the next 12 months to verify payments and get them financed at that time. Notheastern Ohio has been “trashed” by bad loans & flips. It is one of the areas that the FBI got involved in. This makes it easy for me to find abandoned properties but my loan brokers are a little nervous to do anything too creative. Plus this is my first deal, so I have no track record. I would definitely let this deal slide if the buyers weren’t so excited to get the property.

The lease-option makes me nervous too. I never intended to be a landlord & have learned that I could have sold this wholesale 4 months ago if I had understood the process. We live and learn.

I still need guidance on how much to finance if I’m doing the lease option & whether to get financing before or after the papers are signed.