<Steve>

Take possession as a sandwich lease option; place a tenant/buyer, and in a few months take title 'subject to' when the back taxes are paid. I would look at the deal as if the taxes will end up not being paid. What is the possibility that the town house will be foreclosed on due to the back taxes?

Sorry I had to laugh a bit. With just about any type of RE investing you can translate it into a Lease Purchase technique or strategy. I like buy-and-hold, but I hate banks and putting my butt on the line for financing and using my credit. Buy-and-Hold is a bit more of a hassle, yet the potential profit over a longer term is pretty awesome. So Sandwich Lease Options are my favorite. Not to mention the passive income keeps working even when I'm not. For a new investor I think the best thing they can ever learn is how to invest in real estate without banks as a crutch.

Erik- Yes I listen to the audio. It was informative, but for explaining lease options it was minimal. The only thing I see repeating in what I have heard and read are the offering rent credits. Seen as kind-a-like financing the purchase price. But a lease option does not convey title and the tenant is not a buyer until the option is exercised. The D/F law is no way clear on lease options. In fact it says nothing. So who knows? So for me I am going to try to Comply by Lease Application. When a tenant/buyer applies for a deal, I will ask for: -drivers license -pay stub -first 2 pages of last years tax return or W-2 -bank statement -pull a credit report -the rent amount is not greater than a third of his gross monthly income. -and other lease application verifying that is typical. I will not be doing the things that require being a licensed mortgage originator; and a 43% debt-to-income is not required for a lease option. I do not do financing so the tenant/buyer will need to contact a lender. I also no longer offer any help with getting the tenant/buyer financed. It's all on them. For Rent Credits, the Naked Investor agreements state that the tenant/buyer does not receive the rent credits until the option is exerciesed...? I may add something in a disclosure defining a lease option and stating it has nothing to do with financing, and the tenant/buyer has been explained to contact a loan originator for financing. That's where I'm at with all this. Oh, I don't sell houses either, I sell deals via assignment.

My lender ask me how is he suppose to qualify a tenant/buyer for a Lease Option? He only originates mortgage loans.

Tom- That's a good summary. Didn't know about the "One Per Year Category" and can still have a balloon.

Underwriting is currently pretty tough to get through and close today. This coming year, probably next to impossible. Also, interesting that there is NO regulation of the government in this law. The Gov'ment being the one major player that gave the green light that caused the housing market collapse. I can still hear Mr. Frank saying that everyone should have the American dream of home ownership. And Dodd agreeing that even those who could not necessarily qualify for a mortgage, the banks had to have a percentage of loans made to them. Fannie & Freddie are still in business and now years later quietly receiving huge bails outs.

Yes, there has been a lot of talk about Dodd-Frank. My understanding is a lender or seller offering financing and doing 5 or more deals per year will need to "Qualify the Borrower's Ability to Pay" under Dodd-Frank. Documentation of the loan is under the Safe Act. There are about eight factors to consider when qualifying a borrower. 1. Income 2. Employment status 3. Any other current loans and loan payments 4. Any current mortgage obligations 5. Alimony or child support 6. Debt to income 43% 7. Residual income 8. Credit history Lease Options A true Lease Option does not convey title and does not fall under Dodd-Frank. However, I have heard many argue that the tenant/buyer may have an equitable interest. The IRS may see a L/O as an installment sale if the lease term is over three years with large rent credits being offered and if the t/b is required to make all repairs. So How to Comply? First, the Naked Investor contracts clearly state that financing is not part of the agreement. Second, I already qualify my tenant/buyers and document most, if not all, of the eight items above. The tenant/buyer will need to prove that I have not. The Naked Investor "Application" confirms that I have received permission to pull a credit report and obtain personal information. Third, my state regulates Lease Options and I abide and comply. So, if it looks like a Duck it's a Lease Option. An installment sale is an IRS thing. Any tenant/buyer I have over three years is on a month-to-month lease as long as I continue to accept rent payments and by this point the original option has expired and dropped off (Naked Investor Lease Agreement). Rent Credits seem to be the big hang up. Equitable Interest. FHA, the standard today for most loan underwriting, for the most part does not recognize 'rent credits' lowering the purchase price or as a down payment. The IRS do see rent credits as part of the option consideration and those option payments do not need to be considered income until the option is excercised or not. My rent credits only go for one year, even if the lease term is extended longer. But if my argument does not stand up, I have qualified my tenant/buyers' ability to pay per Dodd-Frank, by pulling a credit report, confirming employment & income, and review existing debts for a lease purchase. Because I am not a lender, it is disclosed to the tenant/buyer to contact a loan originator before or at the start of the lease term to know what they need to do to obtain financing. So what I have heard so far, the key is to keep good documentation as proof of qualifying the tenant/buyer. Have a check list for the application process as part of a system to prove compliance with Dodd-Frank.

So, moving to the promised land! Don't tell anyone how awesome it is here. I 'used' to work with an independent contractor on a few deals in Charlotte, so yes we can take over the whole state. MC won't admit it but he secretly loves the Panthers.

With this law coming in January, I'm hearing that Rent Credits maybe an issue as they are paying down the purchase price similar to paying down the priciple of a mortgage. The investor/seller maybe seen a loan originator and the tenant/buyer as having an equitable interest in the property. Any opinions?

Should be interesting to see how it plays out. If others invest in these Rental Securities, bringing cash to these Hedge Fund Investors, I'm sure they will keep going and just keep moving on to the next neighborhood. I still see some of their houses sitting vacant in my market. The BBB has them reated "F".

Hi Chris- I am not to far from Charlotte, and know it very well.

I knew you where one of those Preppers, Ha!

Me either MC, Seems their goal is to group these rentals as "Rental Backed Securities" and sell off the risk to others on Wall Street. Smart Asses Or Smart Assets Time will tell. It's kill'n me though, but hang'n in there. Can't wait for Dodd-Frank coming in January, just what the market needs.

. . . 6 months later Looking back at this thread I can see how freaked out I was last spring when I looked up to see hedge funds scooping up properties. Well, I'm still freaked out. The house I mentioned in the above post #23 that American Homes 4 Rent has purchased to rent out is 20% above market rents. It has not been leased and is still sitting on the market 6 months later. Here is a map of some of the houses purchased by AH4R and are currently available for rent. A few of these would have been my typical CA and SLO deals for this year.

Ready or not here it comes... http://www.cnbc.com/id/101143966#!

Getting an FHA loan just got harder Article: http://realestate.msn.com/blogs/listed-loans.aspx?post=f0066bc2-82f7-47fc-97fa-ddb4a5030850

Congrats on the sandwich Daniel. This is my favorite technique. A bit more of a hassle at times, but the passive income is where it's at these days, for sure.

The fix is simple. Don't spend more than you take in. But of course the powers that be have other ideas ie. Fed Reserve and Wall Street are having a good ol' time. Obama, congress & senant are just tools. This is the true bubble today and the debt is on the backs of the tax payer and the global market.

One year later. . .

Just heard a report that mortgage interest rates will be "Decreasing," could it be that the Fed knows what's coming?

I have a real estate agent calling leaving messages and emails. I had mailed a seller a marketing post card, and the seller forwarded it to their agent. With the agent being so persistent, I decided to call the agent back. It was the typical how do I (the agent) get paid and wanted me to be specific with the numbers. Having seen pics of the house and knowing the area it is around $900. to $950. per month rent. Explaining that I need to pull comps etc. she asks if I could offer what American Homes 4 Rent can do $1,250. LOL

Great article MC and explains well the conditions of the current real estate market. You would think that these big boy institutional investors would understand the short term bubble they have created going in (short squeeze). Good investors have an exit strategy and it doesn’t seem like these guys do. I read that American Homes 4 Rent (AH4R) is having big problems managing the properties they have purchased and complaints are high. The BBB has given them a F rating. In my area they are running ads for licensed leasing agents; but it seems they are not doing well paying those they hire. I thought this article explained well the reasoning to purchase existing homes as compared to building new. I always understood that new construction is a sign of a stronger economy. This is evidence that this so called housing recovery if fake. With no mortgages as these institutional investors are paying cash, when it crashes will they dump their inventory quickly? Or, do they think they can be like the banks and control the market by holding inventory and selling below market value? I know their cash is tied to Wall Street in whatever way. I agree that a real estate recovery, and/or any growth lol, is tied to the economy and a strong job market. Well, the economy is in the crapper, still. This is a good read and I learned some stuff. I just wish this would cycle through quickly as local inventory is dreadfully low, especially FSBO.

Checked out 'American Homes 4 Rent' again and it is unbelievable what they have cobbled up; sucked the market dry. Aren't these hedge funds supposed to be backing off?

Hey Tom- I do reply a bunch and don't get flagged. I think it is just a way to hide the seller's email address to reduce spam.

Congrats with the Ohio deal MC! Expanding the marketing foot print is a good idea. I think it is the economic conditions as the reason for the bear market here. Selling a house is more of a necessity it seems rather that an emotional move. Many are sitting tight and not selling, those that do are priced right and get sold.