CFD vs Lease Option - Posted by Toney

Posted by Earl on August 06, 2001 at 22:45:11:

Bud, I live in Texas as well. I believe the new changes for Contract For Deed Take effect Sept. 1. Do you think that selling either by PacTrust or just a l/o if you would like to cash out in 2 yrs. or less be the best way to go now. When you sell on PacTrust how much could one expect to pay for closing costs with a $119.9K selling price? Lastly, do you split the appreciation with the buyers when you sell on a PacTrust?



CFD vs Lease Option - Posted by Toney

Posted by Toney on August 06, 2001 at 11:27:03:

There are 2 different schools of thought on this one and I want some input. Is selling a home on a contract for deed with (for example) 10% down and a 11.75 interest rate less advantageous than doing a traditional lease option? The pros for the CFD are higher down, no maintanence, (Potentially) better cash flow, and less vacancy risk. Pros for the lease option are better control of your property and no risk of having to forclose on a deadbeat buyer. Has anyone out there sold on a contract extensively? I’m just curious if the risk of forclosure is worth the cash flow advantage. Also, would making the buyer sign a quit claim deed to be filed in the event of default minimize the risk? Is it legal?

Why not have advantages of both - Posted by Bud Branstetter

Posted by Bud Branstetter on August 06, 2001 at 18:56:09:

I live in a state that has one of the fastest foreclosure processes around. I feel sorry for those guys that take 6 months or more. I have sold on CFD, contract for the beneficial interest and lease options. Since I do it full time I would be considered a dealer and not able to do installment sales without booking the total gain in year of sale. I would not be able to 1031 exchange a property. Just some of the downers of CFD.

I now use the Pactrust. I give the tenants a bundle of ownership benefits without giving them equitable interest that they could club me with in getting rid of them if needed. They occupy as a leasee but are able to get appreciation, tax write offs and pride of ownership. All this will I protect my investment status for 1031’s, capital gains and freedom from legal entaglements. Oh, I can depreciate it at the same time.

Re: It depends - Posted by Ed Copp (OH)

Posted by Ed Copp (OH) on August 06, 2001 at 17:26:44:

on what you want to accomplish. On the CFD, yes you can usually get more money down, and a higher interest rate. That is the American way. If they are broke and possibly can’t pay; then raise the price. Go figg’ure.
Yes the possibility of forclosure is increased. That is directly related to how broke the new buyer is. If you cut too deeply and he bleeds too much then he will not survive, it’s a fine art.

Now about “quit claim” deeds. first off may I suggest that you get over the idea of ‘MAKING’ anyone do anything, it is a lot easer to get then to. Many folks if they hear “make you” will form a mental picture of a two word phrase that starts with the letter “f” and ends with you. But yes you can “entice” them to sign a quit claim deed back to you. The deed should be held in escrow and recorded if they default. My lawyer could be the escrow agent, however I prefer to do that job myself if possible.

One more thing about CFD sales that is overlooked is that the IRS seems to think that as soon as the deal is thped up and signed that it is money, so they want all the taxes on the entire CFD in the year that it begins.