Thread: Is this ethical/legal?

Originally Posted by biojen

I have a property for sale and my realtor recently asked if I would be interested in a lease with purchase option. He said that the investor that was interested in the property wanted the amount I owed on it and the interest rate for my mortgage before he would make an offer. I don't understand why he would need that information. The house is worth what the buyer is willing to pay regardless of what I owe, correct? It doesn't seem ethical to me for the realtor to try to get this information to a third party. Any thoughts?

The investor wants to know how much you owe on your home to see if there is enough equity in it for him to have a deal. He also needs to know your interest rate because he plans on turning it around and selling it to a new buyer on a lease option, so he needs to know the rate and monthly payments.

As far as a house being worth what the buyer is willing to pay... yes and no. Yes for your average Joe off the street. No for investors. For an investor the house is worth what it can appraise for because that is what he is going to sell it to his "buyer" for.

For instance: If your home can appraise for $100,000 and you only owe $90,000, and your monthly payments are $700, here is what he plans to do. Buy it from you on a lease option/land contract for what you owe, $90,000. He then advertises for a buyer. Once he finds a buyer he will get a significant down payment from them, say $2,000 or so. The new buyer has 1-3 years to purchase the home at the appraised value, $100,000. He also charges them $850 a month.

The investor gets paid on the front end, on the monthly payments, and then again on the back end once the new buyer gets financed.

He is looking for somebody motivated enough to do it. Being an investor in a previous life I would look at this as a LAST resort. There are alot of risks giving up control of your property to somebody you just met.

My two cents, keep the change.

Oh, and to answer your question. Yes, it is legal. If done right it can be ethical too.

Thanks for replying. So, if I am understanding this correctly, this type of transaction assumes that I am desperate to sell and willing to take a loss on the total value of my property? Also, he wasn't planning on buying it out right, so does this mean he could rent it to someone else (who may damage the property) and then not buy it at the end of the lease term?

It sounds like I should just rent the property myself, at least there wouldn't be a middle man.

Originally Posted by biojen

Thanks for replying. So, if I am understanding this correctly, this type of transaction assumes that I am desperate to sell and willing to take a loss on the total value of my property? Also, he wasn't planning on buying it out right, so does this mean he could rent it to someone else (who may damage the property) and then not buy it at the end of the lease term?

It sounds like I should just rent the property myself, at least there wouldn't be a middle man.

Yes, investors look for motivated/desperate/distressed homeowners that NEED to sell fast. Yes again, he would sell it either by rent to own or lease option to somebody that may damage the property. In my experience most lease options or rent to own don't end up closing, but that's just my experience.

If you really need to move on then I would do it yourself. You might want to seek legal advice first, just to cover your you know what!

Just an FYI, I'm not saying that investors are bad or trying to take advantage of people, but I am saying that investors are just that. Investors.

I have a house right now that I am buying on a land contract. The guy called me and said that he was selling it to somebody else on a land contract and that they defaulted. When he got posession of the house he learned that they had trashed the house. He didn't have the money to fix it himself plus he was SO tired of this house he just wanted it gone.

He called me and I told him what price I would be willing to buy it from him on a land contract. Once we agreed we went to the attorneys office, signed the papers, I rehabbed the house myself and when it closed here in a few weeks we will all be happy. Previous owner sells his house, new owner gets a great house, I get paid. Win/win/win.

Just a word of caution, many of the investors trying to do the "sandwich" deal, where they lease it from you, then lease it to someone else, do this because they do not have the money or credit to buy it. This is not true in all cases, but be cautious, and REQUIRE the investor to get pre-qualified, just like any renter would if they are trying to rent from you. Get a credit check and proof of income. After all, if the renter defaults, the investor is bound to the contract to pay you the rent. And make sure you get a good deposit, because if you get the house back, you are stuck with the repairs. If they won't do it, I would walk away from that deal.

of investors who present them self as home owners and are not.

There are company's and investors who pose as home owners and what they really try to do is find distressed owners who need to sell now, find out what is owed on the property and try and find a buyer above what you owe and do a dual close so they make they difference of what you owe and what they sell it for.

Another note about the asking of your mortgage balance and rate -

The investor may have wanted to know this because he may be considering an offer to purchase your house subject to your existing mortgage. (Which means the mortgage you have would stay in place, but the investor pays the bill every month.) This is a less expensive way for an investor to buy a house (since he has far less closing costs than if he originated a new loan), so he may be able to offer you a higher price due to his savings on closing costs. (Or he may be trying to keep a few thousand extra dollars in his own pocket.)

Either way, it doesn't necessarily mean that he can't afford to get his own mortgage. Investors are limited on how many properties they can have traditional financing on at one time (the limit was recently reduced from 10 to 4), so even if the guy can afford to get a mortgage, he may not be able to because of the 4-loan limit.

Regarding your Realtor being involved - did your Realtor request that you provide your mortgage balance & rate info to him so he could provide it to the investor, or was he simply relaying the fact that the investor asked the question? Don't forget - your Realtor is working in YOUR best interest, not the other guy's. If he's asking because he wants to relay the info back to the investor, a red flag should be going up.