How Does Selling My Property via Lease Purchase OR Owner Financing Work?
I find myself answering this question numerous times per day so below is a summary of how and why a lease/purchase is a great option for selling your home in almost every case. In addition to working with my own investments, I also am fortunate to be partnered with a real estate agent/broker with 25+ years of real estate experience who has been specializing in lease purchases since 2008. We know that the market is constantly changing and in order to get top dollar for your property, you’ve got to change with it and be aware of your options.
Approximately 82% of the market cannot qualify TODAY for financing and typically would need to improve their credit to do so. That is a national number that is not improving. Alternatively, other buyers with good credit are looking for a way to buy now while they save more instead of renting while they save. Yet another group of people need seasoning as self-employed individuals. This means, at best, if you are selling with a Realtor or by owner conventionally, you are marketing to 18%+- of the market.
We can buy homes all cash with a quick close, but that is typically for distressed property, mortgage in arrears or otherwise reasonable to expect a discount as well as bank owned property. We can also purchase with lease/purchase or owner financing – both of those with fairly short term cash outs for you at market value. When we meet, we can decide the best purchase option for us. For property that is in good shape (which is 95% of what we purchase), we can purchase it via a lease/purchase or owner financing (depending upon your underlying mortgage(s)). Sometimes we will be your buyer and sometimes we’ll assign a buyer to you from our list after we sign a contract with you to purchase.
Keep in mind, we are NOT Realtors offering a service and you will not pay us any fees. Most sellers I speak with think these types of purchases are only for low-end homes or homes in rough shape. Quite the contrary – we handle homes from $150,000 up into the $10 million range. At any one time on our site you’ll see homes in that range. On our blog you’ll find some recent deals we’ve done. There are many people out there that have cash to put down, have good monthly income, but have had life events or other challenges that caused their credit score to go down—things like divorce, death in the family or other, seasoning needed for a new business and other challenges. On many occasions, we’ll assign our contract to them and get them financed.
The lease purchase sometimes includes a nonrefundable down payment. Typically, we are at or over your asking price for the net amount to you once cashed out. When we meet I can give you examples using your numbers.
In addition to the nonrefundable deposit, you receive a monthly payment until fully cashed out. Depending upon the debt service on your home, this may add additional cash flow thus increasing your net amount for the final sale, or it will minimally cover your mortgage.
The lease purchase means we are 100% responsible for maintenance, repairs, taxes, etc. after 30 days. The only thing you’re responsible for is your insurance if it’s not included in your mortgage payment (or if you don’t have a mortgage) and it will change from a home owners’ policy to a simple landlord policy which will reduce your costs slightly. If your insurance and taxes are currently escrowed, the monthly lease will cover them. In most cases, if there ‘s a loan on your property and there is monthly principle pay down, that is passed on to us. In this case, your profit is locked in and predetermined ahead of time so you know.
Who is this not a fit for?
I have found that this is a huge advantage for anyone looking to maximize their price except someone that has cash in the home that absolutely has to be freed up NOW in order to buy another home. It will still work for you but you would have to do a refinance, pull out cash needed and then secure a lease purchase with us to cover the new underlying mortgage.
What if I still have my loan and want to go buy another home and get a mortgage to do so?
Banks and mortgage companies vary on this one and it has been my experience that a local bank will do better than a mortgage broker, but please ask your loan officer or local bank. If you would like us to refer a few, we’d be happy to do so. I’ve seen them count your lease payment anywhere from 75%-100%. For example, if your mortgage payment is $1000 and you are collecting only $1000 on your lease, if they are only counting 75%, you will be credited for $750 monthly income as far as your debt to income qualifying ratio and that means you have $250 net debt. If they count 100% of your lease income it’s a break even and will not at all affect you qualifying for a loan.
Please feel free to contact Sean for a more detailed conversation or to have a free consult at your home: