Posted by Don (VA) on November 13, 2006 at 15:49:56:
You ask: “In your guys experience an ad in the paper that read” No qualifying, Low Down Payment, Call xxx-xxx" wouldn?t get some people that could qualify to make that down payment." Maybe for some properties in some areas of the country at some point in the economic cycle. But I recently had a property I was trying to lease-option and ran those ads for 3 solid months in everything from the Sunday Washington Post ($100 per ad) to CraigsList (free, bless 'em). This was for a $275,000 condo in the Virginia suburbs. I didn’t get one person with more than $3,000…most didn’t even have enough for the first month’s rent. And the reason they couldn’t qualify for a conventional loan, of course, was that their credit was lousy.
Technically, too, your ad is wrong. It’s not “No qualifying.” You’d better make sure you qualify them. It’s “No bank qualifying.” And it’s not “Low Down Payment.” If it’s a lease-option, they’re not making a down payment. It’s an option fee, which they forfeit if they don’t exercise. Maybe “Only 3% moves you in!” or “Only $6,999 moves you in!”
As for your question: “And in the deed to them have a clause “deed in leiu of foreclosure” if the default on a payment to you? So if they cant make the monthly payments, you evict them and get a new person to make the down payment.” For gosh sakes, don’t give them the deed! At most, you give the tenant-buyer an option. Maybe less: At least one guru recommends just giving the tenant-buyer an “agreement for option.” It can’t even be recorded. If they comply with all the conditions of the lease and the agreement, then when they want to exercise, you give them the option. What you don’t want to do is give them any equitable interest in the property. If you do, then you’ll be faced with foreclosing on them, rather than evicting them. If they don’t make the monthly payments, you want as simple an eviction as possible. That means no equitable interest, and that means a lease document totally separate from any option or agreement for option.
Finally, the seller may not be motivated enough at this point to make a $700 a month contribution. But for every month he pays $2,100 on an empty condo, he could have covered three payments under your arrangement. What’s the average days on market for his sort of property? Around Northern Virginia, 100 days isn’t unusual. There are condos (and not just the one I mentioned above…that one has now been on the market for about 270 days) around here on the market for 150-200 days. That’s six months! Give your guy a call after two months and see if his level of motivation has changed.