Leases and options can be put on properties regardless of bank notes being in place. Both the leases and options are in junior position behind the lender. Free and clear is nice if you are structuring a seller finance deal OR a lease OR an option, as well as any combination of the three. If there is an existing note in place, you can buy subject to the loan staying in place as well.
@James McCray , yes the bank usually has the option to accelerate the loan if an option on the property is sold. No most people who use this strategy are not worried about it because it rarely, if ever, happens and if it did you would most likely be given the chance to just unwind the position. If you are worried about it then yes looking for those unicorns known as distressed sellers with free and clear properties would be best.
One of the primary differences between a lease/option and owner financing is who holds title. For a lease/option it is the seller. With owner financing it is the buyer.
@James McCray , I don't do lease options. I have looked into them and don't understand why people get so high on them. I suppose it is the lack of responsibility that goes along with it since you are not on the hook for anything aside from your option price. I do not like the lack of control, though, too much can go wrong. I would much prefer a Sub2 deal where the property is deeded over to you. Much harder for the seller to go behind your back or for his problems to become your problems. You will be much more vested in the outcome of the deal, though.
In either case you are looking for a distressed seller with a problem you can solve for them by taking over the property. These typically are not sophisticated sellers so trying to explain a lease option and how it benefits them is much harder than "look, deed the property to me and I will give you a little bit of cash and take over the payments for you." I'm sure if you talk to a lease/option guy he would totally disagree, but that is not me.
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