As a real estate investor, there are several investments techniques which you can use to buy properties, that you won’t want to use when selling properties.
Assigning Sales Agreements
First of all, when dealing in the Wholesale Quadrant, you can either do a double closing to your new buyer as we discussed earlier, or you can assign your sales agreement to the other investor and let them close the deal. However, you’ll almost never want to assign your sales agreement unless you have collected all the money you’re making on the deal upfront. This is because if you assign your purchase and sale agreement to another person, you have just given complete control over the deal to them. If they don’t close like they are supposed to, you won’t be collecting your money at closing, because there won’t be a closing.
Selling “Subject To” On Your Own Property
Another strategy to avoid when selling is doing a “Subject To” sale on your own property in which you are the borrower on the underlying loan. Unless you are extremely motivated to sell, you won’t want to hand over the title to your property and trust the buyer to make your mortgage payments for you.
It is OK, however, to sell using the “Subject To” technique when you bought the property “Subject To” yourself from another seller.
Seller Held Mortgages Or Wraps
For the same reasons we just stated, you won’t want to sell under a wrap around mortgage either, if you are the borrower on the underlying loan. It is OK though to sell under a wrap mortgage if you took over the property “Subject To”.
You also won’t want to give a seller held first mortgage when selling. It is much better to “test drive” your buyer first by giving them a Lease Option. This way, you can make sure they’ll make the payments like they should, before you hand over the title and take back a mortgage. You can simply convert the Lease Option to a seller held mortgage later if you want.
It is OK, though, to hold “second mortgages” on properties you are selling. This may be especially necessary when dealing in the Retailing Deal Quadrant.
Agreement For Deeds
Finally, you shouldn’t sell any of your properties under an Agreement For Deed, when you can always structure the deal using a Lease Option. Again, by using a Lease Option, you keep more control over the property.
For instance with a Lease Option, you’ll be in a landlord/tenant relationship. Therefore, if the tenant/buyer doesn’t pay like they should, all you have to do is evict them. Whereas under an Agreement For Deed, you would most likely have to foreclose on the property you are selling. You would also lose most of your tax benefits by selling under an Agreement For Deed. There are just to many other benefits as well with Lease Options that you just don’t get when selling under an Agreement For Deed.
So remember, it’s OK to buy under an Agreement For Deed, but always sell under a Lease Option.