Q. We just got a contract today on a house for 36k, subject-to, for a house that is worth 80k. The deal looks great, but the only catch is the homeowner wants to lease the house back from us. I have done this once before, and made a lot of money on it, but I have read in some places that it is dangerous to leave a homeowner in the house after it is acquired. I had the thought to Lease Option the house back to him, what are the downfalls to doing the deal like this.
A. As a general rule, I do not like letting someone stay in the house after we purchase the house from them. A few reasons why:
1. If they can't make the payments now, how can they pay a higher amount to me?
2. If we need to evict them, they could really confuse a magistrate judge and force the eviction into superior court if their is a question of who really owns the property. Remember, their name is still on the loan and you can appear to be a shady investor.
3. In some states, it can be viewed as circumventing the foreclosure laws of the state which would be breaking the law.
Having stated all of the reasons why you should not do it, if you decide to move forward, make sure you use all the Street Smart paperwork so that you have some levels of protection.