Lease options and seller financing

[Mike S.]

In my search for properties, my goal has been to find what besides price is making a seller want to sell. Quite frankly, I haven’t been very successful at that. I’ve found more properties where the current owner is prepared to sell but it also okay holding onto the property for the foreseeable future because it’s not a bad cash flow property. Obviously, I need to improve my lead generation to find more motivated sellers but the subject of price lead to do some reading on different financing options. Any help with the questions below would be fantastic or if you have any other ideas I’d love to hear them.

Background: investing in SE Wisconsin. Looking for more buy and hold properties but keeping my eyes peeled for other opportunities as well.

Lease option:

• Does there have to be a clause in the existing lease agreement that the owner can form a lease option?
• Do you explicitly stipulate that you have the right to sublease any unit you so choose?
• Do your rights include eviction, cancel leases at the end of their maturity?
• Are all expenses subject to negotiation? (i.e. taxes, insurance, maintenance, capex)
• If you have a lease option with 5-year window, can the owner sell that property to another buyer during that time?
• Can you sell this option to another investor? (If Full market value = $160K, Buyers Option Price = $120K, could you sell the option for $145K and profit $25K?)
• Is the option price you agreed on contingent on traditional bank financing or seller back financing? Do you set that in the agreement up front?
• In what situations do lease options have a good fit? I would think when the seller wants a premium price to sell but is getting tired of being a landlord. You could use a lease option to take work off their plate and then have a more reasonable option price in the future?

Seller financing:

I like the idea of cover to a seller with multiple offers but I’m struggling to develop a 3-offer system. Specifically, if you’re looking at seller financing,

assuming buy and hold investing, comparing the 2 offers below

• 1.Seller Finance: $250K, 5% down, 30yr @ 2.5% = $11,261 yearly debt service
• 2.Seller Finance: $184K, 5% down, 30yr @ 5% = $11,260 yearly debt service

Over the life of the loan, the total cost is the same, the only difference would be the ratio of interest to principal in the total payment.

• For the buyer, I would think the advantage would be in the $184k version since you have a lower down payment since there are both 5% down. On the other hand, maybe having a much bigger sale price would catch their attention more.
• For the seller, is there a difference in taxes to be aware of if you have a very high interest rate with low price vs a low interest rate with a high price? (I’ve read there is imputed interest but I don’t fully understand that quite frankly)
• Would doing a contract for deed be a way to sweeten the deal with a potential seller because they are still holding the deed until the property is pay off or am I asking for trouble? 

thanks 

Mike