Cash flow in TX

[Rich_in_CT]

Bluemoon06,

What percentage of your lease options have actually "converted"?  I have done lease options and have a bunch of friends who have done both lease-options and land contracts (contract for deed) and the people who actually exercise their option (convert) are very low.  Moreover, when I and my friends have gotten the houses back, they are often in disrepair because the tenant either couldn't afford to do the maintenance or did it themselves and did a terrible job.   In fact, I talked to a landlord today who has done quite a few lease options and has NEVER had one "convert".  In my experience, lease options and land contracts are great in theory, but not so great in reality.

What has been your experience?

Mike

You are right propertymanager.  About half actually convert.  I have a mortgage company that will allow them to convert by a refinance.  All they look for is a credit score of high 500’s and 12 months of on time payment (which I provide)  The other half that I get back I use the money that I got up front for the fixup.  I sell it again when I get it back.

Do you only do l/o or would you take a straight renter if one applied?

[Bluemoon06]

Thanks for the reply!! I was actually talking to my realtor/mortgage broker about this today. Can you clarify a few points about this type of deal for me?

- What do you mean when you say "if they convert"?
- He was telling me this is somewhat risky since I'm actually carrying the loan, so if the buyer I'm financing forecloses or something happens, I have to cover (seems like I would be relying on the buyer's ability to make their payments on time). Is this correct?
- He also said it's hard to find buyers for this type of financing. I'm guessing this is where the advertising on our part comes into play. How and where do you find buyers for these types of loans? Do you look for people who can't qualify for standard loans?
- In general, what are the risks involved (long term, short term, w/the property, w/the buyer, etc...) when doing this kind of deal w/this kind of financing?
- Since this is a long term deal, who actually 'owns' the property? I was told me, since I've got the loan on it. What happens if during the 15-30 years either myself or the buyer decides to sell the house?

Sorry to sound completely ignorant on the subject...  I just want to understand more about these types of deals and the risks involved. This seems like a great way to go, if there is minimal risk involved.

Bilal

Yes ballgum

What do you mean when you say "if they convert"?
They refinance out with a mortgage of their own and I get the difference between the sales price.

- He was telling me this is somewhat risky since I'm actually carrying the loan, so if the buyer I'm financing forecloses or something happens, I have to cover (seems like I would be relying on the buyer's ability to make their payments on time). Is this correct?
Yes just like rentals.  They pay you and you pay the note
 
- He also said it's hard to find buyers for this type of financing. I'm guessing this is where the advertising on our part comes into play. How and where do you find buyers for these types of loans? Do you look for people who can't qualify for standard loans?  Yes, but I look for speed bumps in their credit not people whose credit is stuck in the mud.  For example the last guy I got in had good credit but he purchased a house for $100k that actually was worth $50k.  He has to give himself a foreclosure to get out of the house, so he can’t buy a house naturally so he bought mine.  Another was a lady who got divorced.  This messed her credit up and she needs a house to raise her kids in.  But she has geed credit otherwise.

- In general, what are the risks involved (long term, short term, w/the property, w/the buyer, etc...) when doing this kind of deal w/this kind of financing?
Short term not much.  The “buyer” is going to pay his note because he needs a place to live and he pays enough to get him skin in the game.  Long term the guy may not fix his credit and can’t convert.  In that case I evaluate his condition to see if he is likely to convert or not.  If he is not I evict him and “sell” it again.

- Since this is a long term deal, who actually 'owns' the property? I was told me, since I've got the loan on it. What happens if during the 15-30 years either myself or the buyer decides to sell the house?  The property is owned by the trust.  He and I are owners of the trust, but I am the trustee so I control the house.  The deal has a term of 13 to 24 months.

[Bluemoon06]

Do you only do l/o or would you take a straight renter if one applied?

I have not had to take a renter.  I get them "sold" on average in 2 weeks.

[ballgum]

Thanks for all the input Bluemoon06!

So, what would happen if someone "bought" your property and was paying on it for say 5 years and then couldn't convert or decided for whatever reason they weren't interested anymore? If they just left the deal after making 5 years of payments, do they lose all they invested (down payment and all rent)?

Also, how do you find these buyers (realtor, listing service, MLS, ad in the newspaper, ...)?

So, from what I'm hearing it doesn't seem as risky as my mortgage broker told me since you get the house back if the buyer can't pay. Plus, with this option you don't handle the maintenance on the property and since the buyer is trying to own the propery, you shouldn't have to worry about them not taking care of it.

From what I'm hearing this sounds pretty good. I need to read up on the topic.

Bilal

[Bluemoon06]

So, what would happen if someone "bought" your property and was paying on it for say 5 years and then couldn't convert or decided for whatever reason they weren't interested anymore? If they just left the deal after making 5 years of payments, do they lose all they invested (down payment and all rent)?

I don’t go over 24 months.  If they don’t convert, I decide if I need to keep it going or evict them.  Because of the type of contract (consent to occupy) like a lease, it is an eviction not a foreclosure.  They are out in 3 weeks.

Also, how do you find these buyers (realtor, listing service, MLS, ad in the newspaper, ...)?

I use newspaper and sign in yard.  Realtors cost too much and they can’t sell your plan (it is too complicated so they try to out right sell it).  They want 3% now and I don’t have my money until 12 to 24 months from now.  The houses still move in 2 weeks on average.

So, from what I'm hearing it doesn't seem as risky as my mortgage broker told me since you get the house back if the buyer can't pay. Plus, with this option you don't handle the maintenance on the property and since the buyer is trying to own the propery, you shouldn't have to worry about them not taking care of it.

The risk is that it can take longer to place a suitable tenant in the house.  Plus since the house is owned by the trust and you are the trustee, you still have control of the house.

[ballgum]

Is there somewhere I can read more on wrap around mortgages and the different aspects of it? Something from a beginners standpoint that covers the important details I'd need (creating the legal documentation, laws specific to TX, taxes, documentation, tenants, maintenance, advertising, etc...)? Book suggestions or websites?

Thanks,
Bilal