Posted by JT - IN on October 21, 2001 at 11:50:42:
Stacy:
My first choice is selling for all cash, due to buying lots of FC inventory, on a recurring basis. This has accounted for about 80% of my exits. When a property is not conducive for that, or market conditions dictate, I will then offer a L/O. The L/O tht I do, are for 2 years. The Lease and Option are seperate instruments, and are both for the 2 yr period, however, verbally, I tell the T/B that I will pay a portion of their closing costs, if they are successful at refi within 12 months, and that means closed in 12 months, not 13!. This wikllusually mean that i have been on title for 15 months, or more. Usually about 9 months into the L/O, if things have gone as planned, I will contact the T/B to remind them of the offer. Sometimes this works and sometimes not. It is always the hope to get cashed out early.
I am about to purchase a home via land contract. Can I accurately say I am purchasing the home, or is this another form of leasing. How do I prove to future creditors that I am actually prchasing the property if there is no mortgage. Does this carry the same weight as purchasing with a mortgage.
Posted by JT - IN on October 20, 2001 at 12:34:16:
Todd:
In a Land Contract purchase, sometimes called a Contract for Deed (CFD), the buyer, or Vendee, has what is known as “Equitable Title”. This means you own the equity of the Real Estate, if any, beyond the contract price.
Yes, it is a legitimate form of (contracting for) ownership, as the name implies, but there are some limitations, not experienced with “fee simple” ownership. For instance, you will not find anyone to lend you money, secured by the real property. You will have the right to sell the property, and cash out your position, provided you find a bankable buyer. You may not have the right to sell on CFD, unless your ocntract specifically either excludes or gives the right for you to do so.
I have bought many properties on CFD basis, and utilized this as the tool that it is, and made pelnty of money doing so. Yes, it is a viable option, and a method that is better than a lease or L/O, as the buyer.
Posted by Stacy (AZ) on October 20, 2001 at 14:44:21:
Just a minor clarification. When you stated:
“For instance, you will not find anyone to lend you money, secured by the real property. You will have the right to sell the property, and cash out your position, provided you find a bankable buyer.”
A home purchased via CFD can be refinanced by the buyer to pay off the CFD (including any underlying loans). Therefore, a lender would be lending money, secured by the real property, without selling the property.
Posted by JT - IN on October 21, 2001 at 10:44:19:
Stacy:
Yes, you are correct. Back when I used to do CFD as an exit strategy, that was always the objective, to get the buyer to that point of being able to refi me out of the deal. Worked with great success.
No longer do CFD due to dealer issues, now using L/O in lieu of the CFD as a selling vehicle. However, will still occassinally purchase using CFD, then either resell, or refi myself, depending upon strategy.
Posted by Stacy (AZ) on October 21, 2001 at 11:26:11:
JT, I agree with selling on L/O due to dealer problems. I now do the same for the majority of my deals. I’ve really never understood why the tax laws are so brutal on “dealers”, making them pay for any paper profits in the year of sale. Makes no sense to me, and it would certainly make investor’s life easier if this distinction was removed from the regs. I can always dream.
Question for you: how long do you hold your L/O’s before you consider yourself safe from a dealer sale. I aim for a year or more (prepay penalty if sooner), but am under the impression that if all my properties sold on L/O were to cash-out at 12 months, they could still be seen as dealer sales. 12 months also happens to be the magic number that allows a classification as a long term capital gain instead of short term, which is a very imnportant tax savings strategy.
How long do you hold your L/O properties to avoid the classification as dealer sales?