Private Lenders LTV AND SIMPLE INTEREST

10 Replies

I have a friend that asked me this question. He said if I buy a ready to move in home to lease to own to a good family at 20% below market/appraisal value. Could I find a private lender willing to work with me or do I need to bring more money into the deal and get a 30% equity position? (which is hard with limited funds).

Example: The motivated seller offered to sell his $100,000 house for $90,000 and I put $10,000 in the deal which gives me a 20% equity position. 

Could he talk with a private lender and ask for 80% financing for up to 3 years at 6% annual simple interest. 

He would be willing to pay the 6% annual interest monthly out of the cash flow with the understanding, the lease to own tenant buyers may buy the home anytime within the 3 years.

For a lease to own deal, you're not going to need a private lender at all. A lease option is not a form of owner financing, financing, etc. The "option" grants the grantor the exclusive right to buy that home for a specific price, over a specific period of time. They must still execute on their option and purchase the home before that time frame expires, otherwise they lose their option. Hence, no need for a private lender (unless they need to use one to finance the home before the option expires, and they've exhausted all other possible permanent financing solutions in the meantime).

Thanks Casey,

I need to explain a little bit more. My friend is wanting to buy a ready to move in home from a ready to move seller. He wants to buy the home, not manage the home or sublease or even assign a lease. 

He wants to be the owner and offer the home as a lease to own because he wants all the benefits of property ownership.

Oh ok, so he wants to buy the home using some sort of financing, and then sell that home once he's the owner as a lease option to someone else? Did I get that right?

@James Register

if your friend is in North Carolina don't do lease options, do a delayed sale and purchase, which is not under Dodd Frank, 36 month term, 3% earnest money

See your local small bank and ask for 80% of appraisal loans. Explain your exit strategy.

Open escrow with escrow instructions, lease, sale and purchase, and all other North Carolina sale forms like sellers disclosures, etc.

Ah, I didn't catch that he lives in NC. 

@Brian Gibbons , in your opinion, since he's the owner and not the assignor (ie: investor like me), is the lease option still a bad choice (as long as he still complies with the NC lease option laws?)

The major problem in North Carolina it's not that it's illegal, it's that it's very litigious to get a bad tenant buyer out of the property

I have a copy of the statute on my blog

In North Carolina if you want to help a buyer buy the property, Think about using a lease and a ROFR, right of first refusal, that is also on my blog.

I think the title is, why is a ROFR better than option in North Carolina?

Originally posted by @Brian Gibbons :

The major problem in North Carolina it's not that it's illegal, it's that it's very litigious to get a bad tenant buyer out of the property

I have a copy of the statute on my blog

In North Carolina if you want to help a buyer buy the property, Think about using a lease and a ROFR, right of first refusal, that is also on my blog.

I think the title is, why is a ROFR better than option in North Carolina?

 What about the "First Right of Purchase," instead of "Right of First Refusal?"

Right of First Refusal

"A right of first refusal, also known as a preemptive right, is different from a contract to purchase real property or an option to purchase real property. In giving a right of first refusal, the owner of real property promises that if he decides to sell, the holder of the right will receive the opportunity to match the actual offer that has been made to the owner by a third party or, alternatively, the owner must first offer it to the holder at a fair market value before he places it for sale. The holder of such a right does not own an interest in the real property of the owner but has an executory (meaning to happen in the future) contractual right which, when triggered, may require the owner to convey the subject real property to the holder."

More from NC legal blog

First, I want thank you all for all your quick responses. Now I have another question. If we give the tenant the First Right of refusal, does the tenant has the right to file a legal notice with the local courthouse, just like a "memoranodan" maybe?

I understand the tenant does not have any equity/cash in the first right of refusal "agreement"

North Carolina General Statutes Chapter 47G Option to Purchase Contracts Executed With Lease Agreements

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North Carolina Lawyer

  • N.C. Gen. Stat. § 47G-1. Definitions
    The following definitions apply in this Chapter: (1) Covered lease agreement or lease agreement. - A residential lease agreement that is combined with, or...
  • N.C. Gen. Stat. § 47G-2. Minimum contents of option contracts; recordation
    (a) Writing Required. - Every option contract, including any assignment of an option contract, shall be evidenced by a contract signed and acknowledged by...
  • N.C. Gen. Stat. § 47G-3. Application of Landlord Tenant Law
    The provisions of Chapter 42 of the General Statutes apply to covered lease agreements. (2010-164, s. 3.)
  • N.C. Gen. Stat. § 47G-4. Condition of forfeiture; right to cure
    A purchaser's right to exercise an option to purchase property under an option contract cannot be forfeited unless a breach has occurred in one...
  • N.C. Gen. Stat. § 47G-5. Notice of default and intent to forfeit
    (a) A notice of default and intent to forfeit shall specify the nature of the default, the amount of the default if the default...
  • N.C. Gen. Stat. § 47G-6. Effect of seller's default on loan secured by mortgage or lien on property
    If, at any time prior to the expiration of the time period in which the option purchaser has a right to exercise the option...
  • N.C. Gen. Stat. § 47G-7. Remedies
    A violation of any provision of this Chapter constitutes an unfair trade practice under G.S. 75-1.1. An option purchaser may bring an action for...

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