L/O - Insurance, Utilities, Taxes, DOS
I have read the various CRE strategies and have come to the conclusion that L/O seems the best for me. My strategy would be lease then sub-lease to a new tenant/buyer.
As I get started, I do have a couple of questions that I would appreciate some help with:
1) When doing a sublease, who pays the fire insurance, utilities, taxes. If I lease and then sublease to someone else, it seems like this is going to raise a red flag somwhere.
2) If a seller has an existing mortgage and does a lease option to me and then I sublease, doesn't that trigger a problem with the mortage company. Don't they care that theseller that is on the mortgage isn't living in the house? Who gets to pay the property taxes? Who gets to write of any interest if mortgage payments are involved?
3) Does anyone have some sample L/O contracts that would work in Utah?
4) I there anyone from the SLC Utah area on this board that I can use as a mentor.
Any help would be of great value as I take my first steps.
Thanks.
[quote]
On 2003-12-13 18:11, stanman wrote:
I have read the various CRE strategies and have come to the conclusion that L/O seems the best for me. My strategy would be lease then sub-lease to a new tenant/buyer.
As I get started, I do have a couple of questions that I would appreciate some help with:
1) When doing a sublease, who pays the fire insurance, utilities, taxes. If I lease and then sublease to someone else, it seems like this is going to raise a red flag somwhere.
As in any lease, the owner, in this case the seller would pay all those costs. Their cost would be reflected in your Lease contract. You in turn lease it to someone else for more than your monthly payment. Thus the profit on the spread.
2) If a seller has an existing mortgage and does a lease option to me and then I sublease, doesn't that trigger a problem with the mortage company. Don't they care that theseller that is on the mortgage isn't living in the house? Who gets to pay the property taxes? Who gets to write of any interest if mortgage payments are involved?
Contractually it does trigger the DOS, but in reality, if the payments are made on time, there should be no problem. The owner pays property taxes and gets the mortgage interest write off.
3) Does anyone have some sample L/O contracts that would work in Utah?
Can't help you there. Buy a course and take their forms to a local RE attorney to be made state specific.
4) I there anyone from the SLC Utah area on this board that I can use as a mentor.
Good Luck,
Shawn(OH)
Thanks for the response, Shawn. Appreciated!
I agree with most everything Shawn said, but I have a different opinion on two small points.
1. You asked in your first question who pays for the utilities. In most instances, the lease agreement will specify which utilities are supplied by the landlord and which utilities are paid for by the tenant. In most instances, the lease agreement will make tenant responsible for the utilities.
2. In your second question, you asked whether lease-optioning the property will trigger the DOS clause. I say, it depends. In older mortgage notes, the DOS clause did not mention an option arrangement and as long as the original borrower is still on title, the DOS will not be triggered.
Newer mortgage notes now have a Due on Sale or Transfer clause whicn does seem to cover the lease-option agreement and trigger the clause.
In the absence of loan fraud, simply converting a former owner-occupied residence to a rental property does not trigger the DOS.
Remember, just as Shawn said, even though the DOS clause may be triggered, it is still up to the lender to decide to enforce it. In most instances, if the loan remains current and the seller does not alert the lender, you have nothing to worry about.