Lease/option - Posted by Stew

Posted by Lori Samson on April 27, 2001 at 12:04:01:

Put it in a PACtrust. Unless there is something else I don’t know about but why would a seller give up that if he doesn’t have the property out of his name?

Placing into a trust is the only way I am aware of

Lori

Lease/option - Posted by Stew

Posted by Stew on April 27, 2001 at 11:54:21:

Is there a way to structure a l/o so that the purchaser receives deduction for interest and taxes.

Thanks
Stew

Re: Lease/option - Posted by Merle E Woolley

Posted by Merle E Woolley on April 27, 2001 at 23:02:20:

We have several properties on Lease w/ Options contracts where our buyer gets the interest deduction on their taxes. We simply calculate their monthly payments with an amortization schedule … just like a CFD. Start with the option price, subtract their down payment, and use the unpaid balance to do the schedule. You might want to title it as Attachment A … or, something other than Amortization.

In the paragraph describing rent credits, say that they receive at the exercise of the option, those amounts listed under “applied to principal” on Attachment A.

We close next Monday on one like this. A Realtor, trying to buy a personal home, failed to qualify for the loan. She called us for help. We will buy for $64,800(market value of $80,000). Seller receives $60,000 cash and enough to pay his Realtor. He also receives a note from the buyer (not us … the Realtor wanting the home) for the difference to their agreed upon sales price … around $73,000. The note is unsecured.

We will L/O the property to the buyer with an option price of $70,300 ($64,800 + plus a $4,000 fee + all other closing costs and prepaids). We will calculate their payment to us at 12% interest (same as they were quoted by the mortgage broker who could not get the loan approved). They will pay us $3,500 down.

At 9% interest, we will pay $480 per month to our lender. Principal and interest payment from our buyer is $687 … gives us $200 per month cash flow.

We make the $4,000 fee plus the 3% spread on the interest until they pay us off. Three years puts $7,600 in our pocket. For those with the fancy calculators, what is the rate of return? Remember, we invested no cash of our own.

Now, back to the question … why use the L/O? From the court’s viewpoint in the event of default, we can evict rather than foreclose as we would on a CFD. In other words, use the good from both situations.

We do not do this on most transactions. We like our tax bracket … all attributable to treating L/O’s as rentals.

Does all that make sense?

Merle

Lease/purchase - Posted by Bud Branstetter

Posted by Bud Branstetter on April 27, 2001 at 16:53:29:

The occupant much be contractually obligated to make the payments.(triple net) They must of course live there. They must be obligated to purchase.

Now, you have given them the right to deduct just like a CFD or purchaser. However you have also given them the right to claim an equitable interest in the property. Any legal entanglements they get into can effect you. They can stop paying you and file a bankruptcy just as you are ready to kick them out. They still don’t pay for some time while you had better keep up any underlying payment. You violated the lenders DOS when you did this if that bothers you.

The advantage of the Pactrust is that they can enjoy the priviledges of ownership but not involve your property in their problems. The occupancy is that of a tenant.

Re: Lease/option - Posted by JPiper

Posted by JPiper on April 27, 2001 at 12:04:16:

yeah…change the thing to a “contract for deed”. Or I hear you could do a PacTrust transaction and give the buyer the tax write off.

JPiper