Tuesday, June 20, 2006

Lease/Option vs. Contract for Deed

Lease/Option vs. Contract for Deed
by Attorney William Bronchick

Many investors are generally familiar with the concepts lease option and contract for deed (aka "installment land contract"). Many real estate investors confuse the two, and this article will help you understand the tax, legal, and practical issues between the two.

Lease Options

First, let’s start with the lease option, which is really two things, a lease and a purchase option. A lease is a contract for the use and possession of land, creating a landlord/tenant (or "lessor/lessee") relationship.

A purchase option is a unilateral agreement wherein the optionor ("seller") agrees to give the optionee ("buyer") the exclusive right to the purchase the leased premises. The option price is generally set at a fixed price at the inception of the lease, although it does not have to be. At any time during the option period (which generally corresponds to the lease period), the tenant can exercise his option to purchase.

An option is not the same as a regular purchase contract, which is a bilateral agreement. A bilateral contract legally binds both parties to the agreement, whereas an option only binds the seller. An optionee is not bound to buy; it is his option do so (or not to do so).

A lease with option arrangement is not a sale, but rather a landlord-tenant relationship. In rare cases, a court may re-characterize the transaction as a sale if it looks like a sale. Furthermore, the IRS does not classify a real estate lease option as a sale until the option is exercised (see, Tax Court Memorandum 1999-11).

Contract for Deed

A contract for deed (aka "installment land contract") is an agreement wherein the buyer makes installment payments on an arrangement similar to an automobile financing. The seller holds legal title to the property as security for payment, while the buyer has "equitable" title. When the buyer pays the full amount due under the contract, the seller delivers legal title to the buyer.

Equitable title gives the buyer the right to live in the property, improve it, rent it and otherwise enjoy all of the benefits of arizona real estate ownership. However, since the buyer does not have legal title, he cannot use it as collateral for a home equity loan (although in some states, banks will lend against an equitable interest in a contract for deed).

The IRS generally treats a contract for deed as a sale, which means the buyer has the tax benefits of ownership. Thus, the payments of interest that are made by the buyer in possession are deductible as mortgage interest, even though the buyer does not have legal title to the property. A contract for deed seller must report the transaction as an installment sale on form IRS Form 6252. Once sold, the seller cannot claim depreciation or any other tax benefits of the property. If the buyer defaults on the contract and the seller exercises his legal option to reclaim the property, the tax code treats the transaction as a foreclosure.

The legal process for repossession of the property is not entirely clear in every state. Some state statutes (e.g., IL, TX & PA) clearly spell out the process, which is somewhat more involved than an eviction, but clearly less burdensome than a full-blown az foreclosure. In most states, the process is not clearly defined, so courts deal with a buyer’s default on a case-by-case basis.

Which is Better?

In summary, the lease option is a landlord-tenant relationship until the purchase is complete; the contract for deed is a sale at the inception of the agreement. In rare cases a court may re-characterize lease option transaction as a contract for deed, but this is limited to situations where the transaction looks like sale (as in the case of a long-term lease option with a declining balance purchase price).

Which formula is better? It depends on the situation and your goals.

A lease option transaction is not a sale, so you will benefit from market appreciation if the tenant declines to exercise his option to purchase. A contract for deed sale will allow you to get more a down payment from the buyer, since it feels more like a sale. In higher-priced neighborhoods the rents may not command enough rent to cover your underlying mortgage payments.

A contract for deed sale will allow you to collect interest payments, which are generally more than you could collect in rent. On the other hand, a property sold is already sold for tax purposes; thus, you cannot use a 1031 tax-deferred exchange on a property sold by contract for deed when the buyer pays off the debt balance. The entire balance paid on the contract will be due as a capital gain, which can be a huge tax liability if you have a low basis in the property. Furthermore, a defaulting buyer on a contract for deed is generally harder to get out of the property, particularly in a court proceeding

Wednesday, May 31, 2006

How To Improve Your Credit Score

How to Improve Your Credit Score
By JAY ROMANO
DO you know your credit score? If you do — and if you don't, you should — you may be able to improve it in just a few months.
"The credit score is a significant factor used by lenders to determine both the interest rate and type of loan program a borrower is eligible for," said Oded Ben-Ami, a senior loan officer for Sterling National Mortgage in Great Neck, N.Y. "And there are circumstances in which even one point either way can make a difference."
The credit score, which ranges from 300 to 850, is basically a quantification of an individual's creditworthiness. Generally, people with scores below 620 are considered poor risks, and those with scores above 680 are considered acceptable risks. The median score in the United States is 723; typically, the higher the score, the lower the mortgage rate a consumer will pay.
The Fair Isaac Corporation, a Minneapolis data management company, developed the formula that is applied to raw data in consumer credit files of the three large credit-reporting bureaus: Equifax, TransUnion and Experian. The result is known as the FICO score.
Craig Watts, the public affairs manager for Fair Isaac, said the factors considered include whether debts are paid on time, what type of credit has been granted in the past, how much of the available credit has been used, and whether there are any judgments, foreclosures, bankruptcies or liens.
While a FICO score is based upon several years of credit history, consumers may be able to raise their scores fairly quickly. Gerri Detweiler, a spokeswoman for an online consumer financial service called EverydayWealth.com, said the first step is to get a current credit report from each of the three bureaus. "If there are mistakes that are damaging your credit, you have a right to get them off" by writing to the company that issued the report, she said.
For example, Ms. Detweiler said, late-payment information more than seven years old should not be included. (Bankruptcies, tax liens and court judgments are not subject to the seven-year limit.)
Another way to improve a score is to reduce the balance on credit cards that are near their limit. And while the most improvement will result if the balance is actually paid down, it may be possible to improve your score by transferring some charges to a card with a low balance.
Those considering taking out a mortgage in the next few months should avoid making substantial charges to credit cards, even if they plan to pay the full balance.
"What the report shows is a snapshot of a specific moment in time," Ms. Detweiler said. If the report is issued before the balance is paid, it could make you appear less creditworthy than you actually are.
Another strategy that may increase a credit score is "piggybacking." Consumers who do not have much of a credit history will not have a good credit score, Ms. Detweiler explained, even if the history they do have is good. But if they are added as an authorized user on a card issued to someone else — a parent, perhaps — the credit history of that card may be reflected on the user's credit report as well.
Mr. Watts of Fair Isaac said that one thing consumers should avoid in trying to improve their scores is to close old accounts. Since the FICO formula takes into consideration how long a consumer has had a particular credit account, closing a longstanding account could damage the score. And since the formula factors in the ratio of used credit to available credit, closing an account will increase that ratio and could reduce the score.
Once a year, consumers can obtain a free copy of their credit report from each bureau by going to annualcreditreport.com. The FICO score based on a specific credit report, along with a copy of that report, is available for $14.95 from myfico.com, a Fair Isaac Web site.

Arizona real estate rent to own

Wednesday, May 17, 2006

Benefits of the Lease Option Program

A Few Benefits of the Real Estate Lease Option Program in Arizona

Split of Equity Growth - You have the opportunity to realize a portion of any appreciation growht while you live in the home.

Rent Credit - Money is working towards the purchase of the home each month that you pay rent on time and will be credited towards your down payment or taken off the sales price.

Option Consideration - This is credited towards the purchase of the home when you execute your option, lowering your purchase price.

Minimum Cash Needed - When you purchase a home conventionally, you must pay closing costs, pre-paids and a down payment. With a lease option contract, you pay only the first month's rent and an Option Fee.

Closing Costs Are Delayed - Your closing costs will be delayed (not avoided) until you actually close on the home.

Profits from Appreciation – When you exercise your option, not only will you have equity from your Option Fee and rent credits but you'll also receive an equity split, meaning you will also receive a percentage of the equity from appreciation in the property.

Buying Power - Your buying power is drastically increased. You can get into a Lease-Option home for as little as the first month's rent and the Option fee. Compare that to a lender who requires 10-20% down plus closing costs and pre-paids.

Credit Problems ok - Qualification restrictions are not as strict as conventional financing. You will be approved at the sole discretion of Complete Real Estate Solutions, LLC.

No Taxes, Less Liability - Since you do not own the home yet, you will not have to pay property taxes and your liability exposure will be drastically reduced.

Time before you actually buy the home - You will have time to repair your credit, find the best financing available, investigate the home and research the neighborhood

Quick Move In Time - Move in time is typically less than one week compared to conventional move in times of one to three months from the time the offer was made.






Real Estate Arizona, Buy a home az, buying a house az, lease option, rent to own

Tuesday, April 18, 2006

Coslty Mistakes in Real Estate

Sell Your Mesa Arizona Home House, AZ Homes for Sale

Selling your home can be an exhausting experience. Last minute walk-throughs, inconvenient calls, price adjustments and the possibility of being stuck with two mortgages are real concerns. If you are not completely prepared, you could end up losing hundreds even thousands of dollars in profit.

The difference between a profitable smooth transaction and a break-even... miserable experience is often a fine line. In the majority of cases, it comes down to the subtle know-how of your professional. By utilizing the knowledge of a good, qualified real estate professional, you’ll ensure the quick, profitable sale of your home. This report is designed to arm you with the knowledge to avoid the 11 most common mistakes that cost sellers serious money.

1. Refusing to Make Profit Inducing Repairs- It always costs you more money to sell ‘as is’ than to make repairs that will increase the value of your home. Even minor improvements will yield as much as three to five times the repair cost at the time of sale. Your agent will be able to point out what repairs will significantly increase the value of your home. Seemingly small fix up jobs can have quite an impact.


2. Not Considering Other Financing Terms- Cash is not always the most advantageous transaction. Income level, tax benefits and current legislation are all crucial factors when considering purchase terms. Professional real estate agents are experts in facilitating your home transaction. A good agent will lead you to the path that will give you the highest yield.

3. Provide Easy Access for Showings- Accessibility is a major key to profitability. “Appointment only” showings are the most restrictive while a lock box is the least. However, there are certain considerations to take into account: your lifestyle, time frame for the desired sale and your relationship with your agent. The more accessible your home, the better the odds of your finding a person willing to pay your asking price. You never know if the one that couldn’t get a viewing was the one that got away. By developing a trusting relationship with your agent, he or she will show the home with your best interests in mind.

4. Priced Too Low / Priced Too High- One critical reason to find the right professional is to make sure the property is priced appropriately for a timely and profitable sale. If the property is priced too high, it will sit and develop an identity as a problem property. If it’s priced too low, it could cost you considerable profits. The real estate market has subtle nuances and market changes that should be re-evaluated by your agent every 30-45 days to help you maximize your return.

5. Relying Solely on Traditional Methods To Sell Your Home- The agent who is innovative and willing to offer new strategies for attracting home buyers will always outperform the agents who rely on traditional methods. Demand around the clock advertising exposure, innovative lead generation methods and lead accountability. These services exist and your agent should offer them to help sell your home.

6. Market Timing / Seasonal Selling- Just as a broker who continually follows the trends of a stock, your professional real estate agent continually follows trends of your home market. They will know if the market cycle is poised to net you the most money. Disregard believing property sales are seasonal, such as “sells better in spring than winter.” Property is always selling!

7. Refusing to Make Cosmetic Changes- The prospective home buyer’s first impression is the most important. An unbelievable amount of home sales have been lost to unkempt lawns, cluttered rooms, bad stains, unpleasant odors... all the seemingly little things. Imagine you were the home buyer and clean your place from top to bottom, military style!

8. Wasting Time With An Unqualified Prospect- Your agent’s responsibility is to screen a prospect’s qualifications before valuable time is lost. Be sure to align yourself with the right professional. Don’t negotiate with unqualified prospects.

9. Don’t Test The Market- Never put your property on line to sell unless you are serious. The right professional will find buyers. If you are harboring indecision, you will blow the sale.

10. Believing You are Powerless to Make a Difference- Be part of the team! Take an active role with your agent to see what you can do to facilitate your sale. Networking with professional peers and personal friends often produces the sale of a home. It’s surprising how many homes are sold this way.

11. Believing All Arizona Realtors are the Same- With all the intricate details and critical decisions to be made concerning your phoenix home sale, should you rely on anyone but a top producing professional? Many friends and family members have been estranged as a result of failing to meet expectations. Your home sale is a time-consuming, effort-related, difficult task. Maximize your profit by utilizing a seasoned professional.

Monday, April 03, 2006

How to Stop Paying Rent Forever...

Paying rent is like pouring money down the drain. But it’s true, buying a home can be a “hair-raising” experience. It can be a roller coaster of emotions... finding the right place... securing the loan... moving in. And if you’re like most of us, your home will be your largest investment. The emotions over such a large and personal purchase can often cloud good business judgment.

Many home buyers do very little research before “diving in” and investing their hard-earned money. Before doing that, it make sense to be as informed as possible. That’s what this report is all about. It’s designed to help you avoid 10 common, critical mistakes many home buyers make. If you follow these 10 suggestions, with the help of the right real estate professional, you’ll stop paying rent and make a good sound business decision that you’ll be happy and proud of for years to come.

1. Inspect, Inspect and Inspect- Go over the inspection report with a fine tooth comb. Make sure the report was done by a professional organization. For condo purchases, go over the by-laws, and association fees. Don’t take anything for granted... inspect everything!

2. Imagine the Property Vacant- Your furnishings and decorations will be the ones filling this new residence. Don’t be swayed by beautiful furniture ... it leaves with the owner.

3. Income Plus Lifestyle Equals Mortgage Payment- Sit down with a competent real estate professional and honestly discuss your income level and living expenses. Take into account future considerations like: children, add-ons, amenities or fix-ups. Your dream home is certainly worth a sacrifice but don’t mortgage your entire future.

4. View Several Homes- See at least 3-5 properties. Don’t move on the first property you see but... don’t move too slowly either. With your agent’s help, you’ll be able to view enough properties to get a good overall perspective of your market. And when you find the right property, all the legwork will be worth it.

5. Utilize Your Team- By aligning yourself with the right real estate professional, you’ll have an entire team working for you. Top real estate professionals have lenders, title reps, inspection teams - an entire group of trained professionals making the whole buying experience simple and easy for you.

6. Be Columbo- Check out all your costs and expenses before you sign: utilities, taxes, insurance, maintenance and homeowner dues, if applicable. Make sure all utilities are on (gas, electricity, and water), so you can inspect everything in working order. Ask lots of questions and be very detail conscious.

7. Do a Final Walk-Through- Visit the property after all the furnishings have been moved out to be sure there are no surprises. Be absolutely positive the property was left exactly as you had agreed upon in the contract. Many times, things are unintentionally overlooked that could have been spotted in a final walk-through.

8. Plan For Flexibility- Closing dates are not written in stone. Allow for contingencies and have a back-up plan. If you or the sellers need a little more time to conclude the final arrangements, don’t let these delays upset or frustrate you. These types of circumstances are not uncommon in a real estate transaction.

9. If It’s Not In Writing, It Doesn’t Exist- All promises and discussions are to be in writing. Don’t make any assumptions or believe any assurances. Even the best intentions can be misinterpreted. Have your real estate professional keep an ongoing log (in writing) of all discussions, and get the seller’s written approval for all agreements.

10. Loyalty Breeds Loyalty- Be open, honest and up-front with your team. Hard feelings and disloyalty will cause headaches, delays or may even keep you from getting into the home you worked so hard to locate. Take the time to select the right team in the beginning and your first home purchase will be a simple, easy and profitable experience you’ll have fond memories of... for years to come.


For more articles, lease option information, rent to own and real estate information visit this very informative website CRESAZ.COM

Friday, March 24, 2006

Arizona - Rent To Own or Lease Option

GOOD CREDIT – NOT FOR EVERYONE BUT IT CAN BE!

Often Times in Life We Are Not Given Many Opportunities. Through the Use of Real Estate Anyone Can Achieve Wealth.

Mesa, AZ (Monday, February 6th, 2006) – Despite the amazing strength of the Arizona Real Estate market in the recent years, many industry experts agree that there is plenty of growth still to come. For those that are faced with a seemingly insurmountable task of attaining a loan worthy credit score, there is still hope. Real Estate companies are finding unique ways of getting people on the path to home ownership so that everyone can capitalize on this methodology of attaining wealth.

Lease-Option or Rent-To-Own are some of the common terms that are starting to pop up more commonly throughout the Real Estate community. These programs are at the forefront of this industry and helping all types of people who might not otherwise be able to achieve the American dream of home ownership. Participants in the program typically lease a home for two years. During this time the renter pays a slightly higher rent and earns credit towards the purchase of the home with each rental payment. After this period, the tenant generally exercises the option portion of the program allowing them to purchase the house with a portion of the equity gained as well as fraction of the slightly higher rent amount. This can be possibly as much as 50% of the monthly rental.

“The beauty of these programs,” said Deborah Robles the Lease-Option Program Manager for Complete Real Estate Solutions, “is they allow people to get the credit they deserve without having to qualify them via there credit score.” This may be the most important feature of this type of program. Credit is more often than not the main reason people are not able to receive loans. This tactic of getting into a house can set anyone on the path to homeownership.


Find out more about these programs from http://www.cresaz.com

Mesa - Rent To Own

GOOD CREDIT – NOT FOR EVERYONE BUT IT CAN BE!

Often Times in Life We Are Not Given Many Opportunities. Through the Use of Real Estate Anyone Can Achieve Wealth.

Mesa, AZ (March, 24th 2006) – Despite the amazing strength of the Arizona Real Estate market in the recent years, many industry experts agree that there is plenty of growth still to come. For those that are faced with a seemingly insurmountable task of attaining a loan worthy credit score, there is still hope. Real Estate companies are finding unique ways of getting people on the path to home ownership so that everyone can capitalize on this methodology of attaining wealth.

Lease-Option or Rent-To-Own are some of the common terms that are starting to pop up more commonly throughout the Real Estate community. These programs are at the forefront of this industry and helping all types of people who might not otherwise be able to achieve the American dream of home ownership. Participants in the program typically lease a home for two years. During this time the renter pays a slightly higher rent and earns credit towards the purchase of the home with each rental payment. After this period, the tenant generally exercises the option portion of the program allowing them to purchase the house with a portion of the equity gained as well as fraction of the slightly higher rent amount. This can be possibly as much as 50% of the monthly rental.

“The beauty of these programs,” said Deborah Robles the Lease-Option Program Manager for Complete Real Estate Solutions, “is they allow people to get the credit they deserve without having to qualify them via there credit score.” This may be the most important feature of this type of program. Credit is more often than not the main reason people are not able to receive loans. This tactic of getting into a house can set anyone on the path to homeownership.

Find out more about these programs from http://www.cresaz.com

Monday, March 13, 2006

Lease Option or Rent To Own! Which do you Prefer?

$1000 / 4br - RENT TO OWN IN PHOENIX- NO CREDIT QUALIFYING! (PHOENIX)
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NO CREDIT QUALIFYING!! GOOD CREDIT, BAD CREDIT, NO CREDIT, NO PROBLEM!!

Rent to own / Lease Option program lets you qualify for a home no matter what your credit situation is. There is NO CREDIT QUALIFYING with this program!!! OWN A HOME WITH LITTLE TO NO MONEY DOWN!!


Have a qualified lease option / rent to own specialist contact you-
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