I've done a few lease options. THey work if both parties actually are really planning on completing the transaction . Buyer puts a non-refundable down payment. This down payment does toward the purchase price but is kept by seller if purchase does not go through. Buyer rents as normal. Sometimes a portion of the rent goes toward down payment too. Typically tenant pays repairs.
when able, buyer buys the house.
Seller is not able to sell to anyone else during the lease term of the lease option.
I dont really see it as a way for an investor to make money, just a way to sell a house to someone who can't get a loan right now, but can in a year or 2 and wants the house.
Seller financing is a perfectly viable option for residential rentals that are owned free and clear by the owner OR for commercial units (retail space or larger 4 units). The lease option is a grey area for me personally. I'm not sure I am fan of it but I have heard of it being done.
I've done a few lease options. THey work if both parties actually are really planning on completing the transaction . Buyer puts a non-refundable down payment. This down payment does toward the purchase price but is kept by seller if purchase does not go through. Buyer rents as normal. Sometimes a portion of the rent goes toward down payment too. Typically tenant pays repairs.
when able, buyer buys the house.
Seller is not able to sell to anyone else during the lease term of the lease option.
I dont really see it as a way for an investor to make money, just a way to sell a house to someone who can't get a loan right now, but can in a year or 2 and wants the house.
You really need to go to my posts on BP concerning these topics, the information you get in a public forum with "investors" will be wrong 50% to 90% of the time, like Christine's post.
But first, you need to learn the basics of real estate, that's not on BP!
Your comment about 20% profit is scary, when you're not improving a property, the value is not arbitrary or just sold like a shirt, the market sets the price in real estate, not the seller.
If you set a price too high and arrange for the buyer to buy it in any manner without an appraisal, you're entering predatory dealing issues as well as violation of Dodd-Frank most likely. If you buy a property 25% below it's true value, you're stealing equity from some little old lady, so again you are predatory.
SLOs are very difficult to pull off for any newbie, and you must have money to back up your obligations to your seller when your tenant takes off, they will take off on you. These are not good arrangements in reality.
L/Os are fine for you to buy as an investor, non-owner occupied or commercial properties.
Seller financing is a very good way for investors to buy, or to sell to other investors, due to Dodd-Frank you need to avoid seller financing with selling to a home buyer.
All of these strategies fall under installment sale contracts, speak to an account/CPA about tax ramifications!
Seller financing is different than underwriting a conventional loan, it takes experience in originating such loans and the question to ask is not how many deals someone did, but how many deals ended up being successfully closed with the loan paid as agreed, paid off and title transferred ! I don't know of any good underwriters on BP. Over 90% of my SF deals ended up closing as mentioned, that also took my mortgage company to make them successful with loan servicing and funding, so it's not really a paint by numbers thing for investors. You have to understand the end target before you can devise a means to hit the target!
Thanks for your information, my 20% profit comes from 10 to 15% below market price then sell above 5 to 10% above initial ARV couple years later. If this is out of reality that proves how newbie I am ;)
My future plan is get realtor license, do seller finance - subject to or wrap up - from seller then lease option to sell and if seller is not comfortable with any seller finance deal then set up sandwich lease option. Maybe this is too much for such a newbie like me.
Do you have suggestion what should I do to begin my journey as a RE investor? I am working as a chef but I don't really like my job so I wish to change my job. Any comment will be helpful thanks.
Please follow my signature logo to a free RE course, begin there! I'm not selling anything there or any where to date, so free is free!
Real estate is not personal property where you really buy low and sell high, this can be illegal, understand the market and how to value RE, then how to improve RE, it doesn't always require lots of money to improve value, but first you must understand what makes RE valuable, very basic stuff.
Go study RE first, not how to swing deals...... Good luck :)