All Forum Posts by: Don Konipol

@Shiloh Lundahl and @Jay Hinrichs.  Thank you both for providing context and personal history with the lease option methodology.

I did some lease options years ago when I was still investing in residential, and even a couple on commercial property. 

I think we all understand that most if not almost all buyers entering into a lease option don’t currently have the credit capacity to qualify for a mortgage, or don’t have the down stroke needed.  This isn’t necessarily a bk or foreclosure situation, although it could be.  It could also be the result of job loss, career switch, free lance work, self employment, spouse wanting to stay home with newborn, pay reduction, or inability to sell existing home, moving job locations, or any other “life circumstances”.

After thinking about it, my opinion on the “ethics” of entering a lease option as an investor with a homeowner/consumer rests on two issues.  First, full disclosure.  I think that the investor should make clear to the home buyer that they forfeit their option money if they don’t perform.  Second, is if the investor WANTS the buyer to perform.  This isn’t as ridiculous as it sounds.  I’ve know investors selling CD or lease option who want to keep the property and k]just looking for the extra “income” from the higher rental rate and lease option fee.  The difference is that the investor that wants the home buyer to complete ownership will sell on terms and price where a deal can be completed, whereas the seller that wants the buyer to fail will have price and terms that guarantee failure.  Further, the seller who wants the buyer to be able to complete the transaction will screen the buyers so that he eliminates the people with no chance of successfully concluding the option, whereas the seller who wants to keep the property will sell to just these type of buyers. 

I don’t believe in tossing out the baby with the bath water. Lease options, contract for deeds, owner financing, etc. isn’t good or bad.  Its specific application and the actions of the principles at play are what determines if it is beneficial or not for all parties.

 Very smart Jay.  But NOT a lot of fun! LOL

My lifelong best friend is an attorney who I’d classify as a leftist/liberal (we’ve been “best” friends since 1962).  We only talk politics when we are at dinner - alone.  We don’t argue, just state our opinions. And the few times it gets a little heated, we end the night by giving each other a hug.  But secretly I do enjoy his TDS! 

This topic seems to have touched a nerve, additionally we do have a difference in opinions.

I think the question is worth considering, buy the answer to me is that all government “interference” in the market leads to distortions.  I’m not arguing the necessity, or the fairness, or the justification of taxation, consumer protection, civil rights, etc, just stating the effect is distortion in the market.

But, as I stated the taxation of a 0 - 20% rate on capital gains (ok 3.8% - 23.8%) is not only very low by the standards of the last 84 years, but also preferential to the marginal rates on earned income, investment income, and short term capital gains.  If we use an example of a $1 million gain, and assuming the seller is married and hence qualifies for the $500k exemption, then the effective rate is 1/2, so around 8.5% plus ossibly another 3.8% or 12.3% effective rate exclusive of the subjects decision to live in a high tax state. 

My guess is that with all the waste, corruption and thievery being exposed by DOGE, as well as the politically motivated spending buried in Congessional spending authorization, people will be further reluctant to pay taxes they may be able to avoid.  But making a sub optimal financial decision or even worse a bad lifestyle decision to simply avoid paying taxes is completely self destructive. 

 Alan, good to hear that enough legal protection can be provided to BOTH parties to have subject to transactions rise to the level of a high rate of success.

The laws passed by Texas legislature making contract for deed and lease option so difficult to comply with and the penalties associated with non compliance - even an honest error - so severe that no attorneys will produce documents for one, is an example of a way over the top reaction to a problem - the patient was sick so we gave him a medication that killed him.  While a great number of people were scammed by unethical fraudsters and sellers in contract for deed transactions before the legislation was enacted, many more were given the opportunity to purchase real estate when they wouldn't have qualified for financing otherwise.  In my experience with contract for Deed, 80% of the problem was centered around home buyers who made the monthly payments in cash and due to poor record keeping or outright fraud, the payments made were not credited.  The other 20% were where the seller passed away and his records couldn't be accessed, or the underlying note was not being paid.  Could have been rectified without "killing" the transaction type completely. 

I do worry that we could see the same type legislation with subject to financing, although the basis of the oversight would require governmental "expansion" as the warranty deed in a subject to transaction is transferred into the name of the buyer, unlike a contract for deed. 

The "fanatics" you reference are people who generally fall into one of three group.

1- real estate "service" providers, such as real estate brokers, property brokers, etc. who have a vested interest in seeing a technique which usually eliminates the need for their services and hence "costs" then a commission banned.  Biased "evidence" is gathered to support the special interest groups position which is totally centered on self interest but disguised as "protecting" consumers. 

2- real estate investors who have seen or experienced, first, second or third hand these transactions "blow up" and believe (incorrectly) that anything that can be misused should banned completely.  

3- real estate investors so turned off by gurus lying to wanna be investors, teaching dangerous methods, and then "unleashing" they're "students" on unsophisticated homeowners that they can't even acknowledge that a subject to transactions can be beneficial to both sides of the transaction. 

I thank everyone who responded to this post for their thoughts, and I hope that with whatever mindset you started with you've at least taken a look at some things brought to light that you hadn't considered.  

@Peter Walther

"yeah, I often disagree with Mr Wise, but I LOVE the fact that he unequivocally states his opinion. Even when he implies that I’m “garbage”. This is the second time I’ve been called garbage in the last 6 months. The first was by Joe Biden. LOL"

I considered my comment above a joke, not a political comment. 

However, I do have to admit that I do derive great pleasure when TDS causes liberals/progressives/ leftists to go off the deep end!