Friday, April 13, 2007

Subject to VS Lease Purchasing Claude Diamond Style


There's alot being said about taking over a property using a "Subject To" agreement, and how much better that is vs. doing a Lease Option. What is your feeling about that?


Lynn H.

Hi Lynn,

Good to hear from you.

Essentially a "subject to" deal is where the buyer and seller do a deal/sale subject to the existing mortgage staying in place under the sellers name (and liability).They do a private contract which is usually not recorded so as not to alert the lender about a change in ownership.

A "subject to" has many advantages however it also has a downside because it is an actual sale and with it carries PERSONAL LIABILITY. This can be offset by some creative legal maneuvering, contracts, corporation etc.

There is also the question of the violation of the Mortgage contract (Due on Sale and acceleration clauses). In rare cases the mortgage can be called in and then the buyers could lose everything they paid on and the seller retains the liability and credit reporting problems.

The Subject To is a great deal if you are the investor and the seller is a world class sucker, fiancially desperate or unbelievably motivated. Why ? Because the seller has all the risk and the buyer has little.

A Lease Purchase allows you the exact same control without the liability (you don't own it). You can sell it, rent it, sandwich lease it, assign it,buy it, live in it yourself and much more.

You are not responsible for the overhead, repairs and have the protection of being a tenant with right and not mortgage obligations.

Consider this, Why does the Chicago commodities exchange exist ? because you can make money without taking possession of a trainload of pork bellies. Same for the Stock market with calls and puts.

Its all about leverage. You can control a lot for a little without the liability of ownership.

Study all the truly great real estate investors, Rockerfeller, Zeckendorf, Even Trump and they all use options to their advantage.

Success in all your Endeavors


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