Based on what you are trying to do, a Long Term Triple Net Lease (NNN) with an option to buy and right of first refusal would address most of your concerns. The lease terms must be over 30 years but less than 99.
A master lease has some of these aspects, but does not have the advantages of NNN leases where you can get a mortgage on it as it's treated as real estate.
I know an investor who does these deals in NY who targets owners owning properties for a long time, don't want to sell due to capital gains, too old to manage the properties. With NNN, the lessee handles everything, taxes, utilities, repair maintenance. Then on lessor's death, he exercises his option, offers to buy from the heirs, with the right of first refusal, he gets first dibs, though the heirs can sell to someone who offers more. But the new buyers is stuck with the NNN lease till expiration. His take is most heirs are more than happy to sell to him and be done with it.
I haven't check the bankruptcy aspect of NNN leases, but having been in the credit field for a number of years, I believe if the lessor declares bankruptcy, it does not negate the lease. But as to the lessor, he has taken back properties from his NNN tenants who failed to perform, such as non payments or bankruptcies.
You're talking about a whole variety of no money down methods. And you want to know what can possibly go wrong.
They go by a variety of names, land contracts, sub-2, rent to own, etc. etc. They all have it's variations and methodology. However, for the most part, there are three players to this, namely you, the property owner, and the bank.
The main thing is each one of the parties has to trust the other and perform their part of the deal. If that does not happen, things go wrong.
Of course, the safest method is you find a house, you purchase it from the seller, put your money down, the bank fiances the rest, the seller is out of the picture. It's just between you and the bank at this point. You pay the mortgage, and nothing much can go wrong from there.
I mentioned doing NNN leases with owners owning properties for a long term, can't sell because of capital gains. The advantage here is they are motivated, and they usually don't have a mortgage at this point. So it's just a deal between you the lessee, and the property owner, the lessor. With an NNN lease, you pay the taxes, are responsible for taxes, repair, maintenance. Nothing much can go wrong unless you somehow screw up.
The nice thing about the NNN lease and buying the property outright is they are recorded into the public records.
Now we move on to "subject to", what can possibly go wrong? Here, you got the owner, you and a bank. Often, because of due on sale, the bank isn't told of the deal. You and the owner are responsible for getting the mortgage paid, with the bank assuming the owner of record is paying. There's been cases when someone bought dozens of properties subject to, fell behind on all of them because of tenant problems on some of the properties, resulting in dozens of motivated sellers, thinking they solved the problem dumping the problem on a rescuer, losing their homes, and having bad credit to boot.
There were extensive discussions on real estate boards regarding the issue: Subject_to_problems
If you're taking about a 2 year master lease, maybe you're thinking of leasing with option to buy. From what I hear, lessors clean up on those deals because the lessee for whatever reason cannot go forward when it's time to exercise the option, thus keeping the option money. They go on to the next sucker. So yes, two years can go by in a flash, which is why a long term NNN lease is much safer.
Originally posted by @Jason Vaughn :
Thanks Frank that's all really good information. So let's assume a NNN lease with option. My question still remains as what gaurantees that owner will let you can execute the option 30-100yrs later. That's a long time for life and other things to come up.
When you sign the Option and submit it to the county does that include all needed paperwork to transfer down the road or will escrow need to get ahold of seller to sign things 30 yrs later? I could see this being a problem down the road.
Any lease can be recorded, not only a Long Term NNN lease. You can record a 2 year lease if it has important provisions, such as the option to buy. See recording lease: Recording Lease
With the lease recorded, people are put on notice of the existence of the lease went they do a title search, and all must abide by it. Lessor can sell it and the new owner must abide by the provision of the lease. If it grants you the right of first refusal, and they must ask you first if you want to purchase.
As the lease grants you the option to buy, you can exercise the option on year 2, or year 30, up to the full term of the lease. A sample option to buy agreement: Option to buy You record this along with the lease. Here's some basics of an option agreement: Option basics You'll have to negotiate the option fee.
Have an attorney prepare and review the documents with you to insure it conforms to the laws of you state. I am not an attorney.
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