# Alternatives to Buying Real Estate: Agreement for Sale Vs. Lease Option Contract



## daledegagne (Apr 6, 2015)

I've been doing some research on alternative methods of buying real estate (purely for fun. Yes I'm a nerd)

I'm wondering if anyone has experience with these 2 methods can provide some examples of when, as an investor, you would use one or the other?


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## Rusty O'Toole (Feb 1, 2012)

They are often touted as part of some "no money down" program. They can be done but very seldom. Don't mention them to RE agents, they will slam the phone down.

If the buyer cannot buy in the usual way these contracts can be done. The last property I sold on a lease option, was a nice 3 bed 1 bath bungalow, sold to a nice couple who were working through some credit issues. They had a councilor and were working on paying down some bad debts. They lost their house due to their credit issues.

I leased them a house with the option to buy. For 2 years they were ideal tenants, paid the rent on the dot every month. With their credit issues cleared up, a mortgage broker was able to arrange a mortgage. I sent him a letter confirming that they had lived in the house for 2 years and their payment history was A-1. They got a mortgage with no problem and became homeowners.

Such unorthodox methods were more popular when interest rates were very high ( 15% - 20% or more, in the eighties) and mortgages hard to get. These days interest rates are so low, and lenders so easy going, most people can just buy a house the conventional way. All you need is 10% down.

I have done a few no money down deals, in fact I did the first one in the early seventies before any of the nothing down books or courses came out. It sounds good when you are selling a book or a course but is a very minor part of real estate investing.


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## sags (May 15, 2010)

We bought a home one time and the seller insisted on a vendor take back mortgage.........preferably for 100% of the purchase price.

His reasoning was the home was fully paid for and he wanted the mortgage payments and interest as fixed income.

The interest rate was 8%..............and he probably didn't claim it as taxable income.

It didn't matter to us one way or the other..........so we agreed and paid him until we sold the house 5 years later.


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## daledegagne (Apr 6, 2015)

Rusty O'Toole said:


> Such unorthodox methods were more popular when interest rates were very high ( 15% - 20% or more, in the eighties) and mortgages hard to get. These days interest rates are so low, and lenders so easy going, most people can just buy a house the conventional way. All you need is 10% down.


Thanks for the example Rusty. That info helps. 

Funny you should mention the ease of lenders. I have a large real estate holding, and although I've run a profitable real estate investing company for nearly a decade, once I quit my military job, the bank lending dried up. And things didn't get better when I became self employed. Anyways - I'm still a little bitter with banks and their inability to see past their nose. 

My thought was to use these contracts as an investor to lock down deals long enough to group in other investors into the purchase. Actually....thinking about it now, a lease option would be the only one I could use in this case because I would have to be able to transfer/sell that option to the investing company (formed by investors...). An agreement for sale would have to be personal unless I formed the company prior to the agreement....


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## daledegagne (Apr 6, 2015)

sags said:


> We bought a home one time and the seller insisted on a vendor take back mortgage.........preferably for 100% of the purchase price.
> 
> His reasoning was the home was fully paid for and he wanted the mortgage payments and interest as fixed income.
> 
> ...


Ya why not right? If the interest rate is comparable who cares?

Did you/were you able to set up direct withdrawals to his account or did you have to manually transfer every month? Because that would be a pain in the butt.


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## Rusty O'Toole (Feb 1, 2012)

daledegagne said:


> Thanks for the example Rusty. That info helps.
> 
> Funny you should mention the ease of lenders. I have a large real estate holding, and although I've run a profitable real estate investing company for nearly a decade, once I quit my military job, the bank lending dried up. And things didn't get better when I became self employed. Anyways - I'm still a little bitter with banks and their inability to see past their nose.
> 
> My thought was to use these contracts as an investor to lock down deals long enough to group in other investors into the purchase. Actually....thinking about it now, a lease option would be the only one I could use in this case because I would have to be able to transfer/sell that option to the investing company (formed by investors...). An agreement for sale would have to be personal unless I formed the company prior to the agreement....


I was up against the same problem, investing in rental properties with no other job. Bank clerks don't get it. You need a good mortgage broker. Once I figured that out, everything opened up for me. I could finance properties no bank would even consider.

I could tell you a funny story about how I could not get a mortgage for $45000 from the Scotia Bank, when they held a $45000 mortgage on the property already, and I had $45000 cash in their bank.

A broker arranged a mortgage for $69000 - from the Scotia Bank.


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## daledegagne (Apr 6, 2015)

Great info again rusty. Any pointers on how to find a "good' broker? What things to look for etc?


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## Rusty O'Toole (Feb 1, 2012)

I wish I knew. If you know anyone knowledgeable in RE ask them. Still, it is not easy to tell when they are blowing smoke. I got into a raw deal once, with the biggest and supposedly best mortgage broker in town. He was recommended by my lawyer.


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