Motivated owner with no equity

7 Replies

a local investor with 5 units wants to sell...He has them financed with my local bank.  They bank DOES NOT want to allow me to assume the loan.  not sure why, I have 6 loans with them currently and a line of credit.  Anyway, I have all my cash tied up in a property I am renovating...I know he would be open to a master lease for what he owes the bank and in 5 years I could get them with no money down...Any other suggestions?  I want to make sure I make the right decision.  He has maybe around 40k of equity in them.  He has had them for 3 years.  I believe they are financed on a 15 year note...Just looking for suggestions.


A master lease option sounds like it could be a viable option as long as you don't have to do a ton of work or stick a bunch of money into something you don't yet own.

I keep my LOs and MLOs under 36 months to not be considered a sale by the local bank. I like 30 months) It can be renewable with additional consideration (cash or improvements) to get you to your 60 month target.  Landlording isn't for everyone.  Sounds like this seller and you may be a good fit to do business @Kyle Penland !

Hi @Kyle Penland

Some loans are assumable. It might make sense for the owner to review his closing documents with the bank.

On another note, are you sure you've tapped into all your resources?  If this looks like it's going to be a home run, have you considered cash out refinances or HELOCs? Or maybe even a loan against your retirement account?

I love creative financing solutions... If you want more tips - just private message me and I'd be happy to give them to you for free.


@Steve Vaughan Thanks!  Yes they are all currently rented and he has proof of payments recieved...He is just too busy to be the rent collector, maintenance guy, and handle showings and leasing the units.  I'm surprised...his father was one of the biggest property owners in our town at one time...Like you said, it isn't for everyone.

@Ashley Wishinski Thanks for the tips...This loan is assumable...His brother assumed the loan on 4 of his properties...Didn't buy these because he didn't want to bite off more than he can chew...Of course he took the better properties, but these are still pretty cash flow friendly.  I have no retirement...I am a 100% commission based employee.  I'll PM you shortly.  

@Steve Vaughan  

I keep my LOs and MLOs under 36 months to not be considered a sale by the local bank.

With the typical wording ANY option agreement violate the due-on-sale clause.  As does a lease longer then 36 month even without an associated option agreement.  So, keeping LOs and MLOs under 36 months doesn't achieve your stated goal.  

I don't see how the right to purchase could be viewed the same as a sale @Jon Holdman . I don't think the bank would win that argument, saying the DOS was violated when only the option to buy was executed. Maybe that's just me? I've never run into that problem before,

@Steve Vaughan its a very common misconception that ONLY an actual sale triggers the due on sale clause.  Any transfer of any part of the property or interest in the property triggers the clause, unless you fall under one of the exemptions.  Here's a link:

What you're thinking of is this exemption from the due on sale clause:

(d) Exemption of specified transfers or dispositions


(4) the granting of a leasehold interest of three years or less not containing an option to purchase;

Notice the exemption is for leases three year or less with no option.  Having either an option or a lease longer than three years triggers this clause. 

An option constitutes a "transfer of interest" in a property.  Once you sell someone an option on a property, you no longer have the ability to sell it.  You're given that ability to the option buyer.  

Thanks for the clarification, @Jon Holdman .   I'll add lease options to the list (along with entities and tax matters) of things I no longer comment on.