Posted by Bob In Indy on November 23, 2004 at 19:32:06:
Hi,
I agree that sometimes you can harpoon a whale.
When we’re teaching, I use an example of a home with a 1000 PITI payment.
I ask the class if they would ever lease out the home for $950 and few would.
However, if someone had 10k down, I would lease the home for less than the monthly payment.
So you can see, I agree with you.
I came to that conclusion when I had a prospective tenant that had terrible credit.
He too asked me what it would take, and like you I said 10k…he didn’t have it, but it taught me that I would lease to folks that had lousy credit, if they had enough up front.
Unfortunately (or maybe fortunately), I’ve never gotten more than $8,500 up front.
Lately, I’ve had to do some creative financing to even get my $5K.
I keep looking for that whale, but I still seem to be attracting carp. (Oh boy, that sounds bad…I mean sunfish).
Remember, If you’re broke…Go buy a house!
Bob Meister
Down payment for l/o, sub2 with bad credit - Posted by James CA
Posted by James CA on November 23, 2004 at 12:47:23:
Let’s say you are providing buyers with not so good credit to buy/lease your prop., but they must put down 5-10%.
I am curious, it they cannot get a conventional loan from banks, there must be some risks involved with their past credit. If a bank doesn’t take them, will it be risk(ier) if an investor give them this opportunity. What are some other risks besides forclosure etc.?
Posted by Bob In Indy on November 23, 2004 at 16:05:06:
Hi,
Generally, you’ll have trouble getting more than 5% up front from someone with bad credit…for a lease/option tenant.
Giving a tenant buyer a l/o does have some risk, but since the property remains in your name, you can buffer that risk by receiving the up front money.
We call that NROC…Non Refundable Option Consideration.
If the tenant doesn’t buy the home or you have to evict them for missing lease payments, then that money
is all yours.
Also, we write our leases so that we can evict in just
a few days if they miss a payment.
Banks have to foreclose and this can be a more costly
process. Sometimes that process is delayed because the tenant buyer can delay everything by filing bankruptcy.
By working with a tenant with bad credit, you can assist them in improving their credit and then buying
the home (exercising their option).
Generally, we don’t give the tenant buyer any ownership rights to the home and therefore we avoid having to go through the foreclosure process.
However, in a few states, foreclosure is a rapid process.
Hope this helps,
Bob Meister
Posted by randyOH on November 23, 2004 at 17:55:39:
Hi Bob,
Could you elaborate a little on this:
“…we write our leases so that we can evict in just
a few days if they miss a payment.”
Don’t you have to follow state law on evictions? My lawyer tells me I can’t even do a regular eviction with my lease/options. He says the judge in our local court (Ohio) will dismiss the case. We have been filing forfeiture actions as if we have a land contract. This takes quite a bit longer than the regular rental eviction.
I agree that it is difficult to extract funds where no funds exist. However, I have had the situation where I turned down a T/B due to el-stinko credit… They were nearly crushed because they really, really wanted the house…
So they said how much would you have to have down…? I told them 10K, (it was an 80K sale price), and they said, “No problem”. Of course in casual conversation, I learned that they had 13K from a workers comp settlement… so in the keeping of always leaving some $$$ in their pocket, I only asked for 10K. If they would have said NO, so would I…
Of course they closed on the house 13 months later.
However, the norm is far more that you are scrambling trying to find a T/B with 2K… or less… and I surely understand.
I have another one on a more expensive sale priced house of 185K where I got a 18K NROC. I am never bashful about asking, and when they balk I simply ask them how much they would have to put down in order for a Bank to loan them the $$$. That seems to put it all into perspective…
Posted by Bob In Indy on November 23, 2004 at 19:24:36:
Hi,
Obviously, if your state has laws governing eviction you have to follow them.
However, most evictions are handled in small claims courts.
Almost by definition, small claims courts are supposed to model Solomon…remember the guy that ordered that the child be split in half?
What that means is that small claims judges can pretty much do what they want…they are supposed to represent the common folks.
We frequently hear stories about judges that say you can’t evict in December, can’t evict pregnant women, etc.
A quick trip to small claims court will clarify what’s allowed and what’s not.
Nearly all the investors that we maintain contact with have corroborated that you can evict quickly…much less than 30 days delinquency.
But we still hear ‘tales’ about the exception.
My leases allow me to notify the tenant when they are 5 days overdue and file for eviction in 10, with the actual eviction within 25 days.
I wish I was that aggressive, but I’ve never had a small claims court judge act like Solomon…they always decide in my favor, since it’s pretty much black and white…The tenant is over 21, they signed the lease and they didn’t pay…Down comes the gavel and the tenant is given 4 days to vacate.
I like my local judge!
Hope this helps,
Bob Meister