Subject To vs. Lease Options

[Hae-Yuan Chang]

Hey everybody!

I am going to reach out to some landlords this week to make a few offers. I'd really like to weigh both Subject Tos and Lease Options, and how to know which is better for which situation. Some thoughts that I have is that if you do a Subject To, then eventually you can have the mortgage paid off and sell the house. With lease options, you can exercise the option, but would have to qualify a loan. Does anybody have any tips about this? Thank you!

[David Dey]

There is no wrong answer regarding which way you want to go for a landlord deal like this.

We ran a unique landlord campaign a while ago where we looked up all the evictions in our target counties.

On the 3 day notices were the phone numbers for most of the landlords.

We then had our callers (and we made some of the calls ourselves) reach out to the owners by phone and see if they might be interested in selling.

(The idea being that they might be at the height of their aggravation having to deal with an eviction)

We actually got some good deals for creative financing (this is not a wholesaler concept)

We did both L/O and subject to.

Many times the difference was the sellers preference.

In some cases the owner was happy with a long term lease that didn't require fixing toilets. Others were so fed up they just wanted the property out of their name.

In either case, the terms of the agreement make or break the deal.

Just remember, your terms are not based on what a standard contract states, but on what the buyer and seller agree to.

My personal preference is to do the L/O or agreement for deed, with specific terms.

The reason is that I like to have a buffer between me and the bank. Instead of having the chance of default being entirely my responsibility, the owner is still in control of his mtg.

This does not mean I leave him to his own devises. The property is put into a third party land trust (my Atty is the trustee) with specific directions to the trustee to make payments on behalf of the trust.

Also, I do not have a balloon in place but have an agreement that once all payments are made, (the mtg and the owners equity) the owners name will be taken off of the beneficiary's position and replaced with mine.

I personally don't care about owning property as much as I want to control property and cash flow. This is why this works.

As far as subject to's are concerned, the process is similar in that the property goes into a land trust, still with the seller as beneficiary.

On a separate form, we do an assignment of beneficial interest, which in essence puts the property into my name.

  As for the management part, I still do a sandwich lease with the land trust which allows me to manage the property without "owning it."

Hope this helps.