Agreement For Deed And Other Questions - Part II

Part II

In part one we left off deciding whether or not we would drop the agreement for deed.

I would highly encourage you not to drop back to the agreement for deed, land contract or rap mortgage (they call them by a lot of different names). I would tell you that 99% of business, I sell on a lease option (even sometimes when they have 10% down).

Now say you have a guy who is just very resistant to the idea of lease option.

You need to ask these questions:

- How much is he putting down?

- How much is the house?

- Do you like him?

- Are you undecided?

Well that is your answer. You don't like him, so the truth is whether you sell it to him on agreement for deed or a lease option, if he is a bad risk, you are going to have the same problem. Many people do lease options, because for one thing you get to keep the depreciation. If you sell it on a land contract, you can do it. If you do it correctly, you can actually depreciate the property when you sell it on agreement for deed, but you have to have the right agreement and one of the conditions is that there would be no recourse to the buyer.

All you can take back is property, you can't go after him for any money, but in reality I've never seen agreement for deed that had recourse to the buyer anyway.

Where does this leave you?

You will have to get some advice from somebody who knows how to do that if you intend to keep the depreciation. Very few people know that you can sell a property on contract and still depreciate it. As far as the IRS is concerned, it is not a taxable sell until you have been cashed out or unless you do it on a wrap-around mortgage type thing. But remember, an agreement for deed is not a wrap-around mortgage! You do not deliver the deed, you hold on to the deed. An agreement for deed is just simple a glorified least purchase. In the eyes of the state of Georgia it is a sale and the right of the buyer gets all the rights of a sale but they don't get the deed until they pay you off. You do lose appreciation and if you're not careful you'll lose depreciation. But what you gain is A - you have no responsibilities to the property whatsoever, maintenance, taxes, insurance, or anything; it is not your property. B - you have an easy payment to collect and you become the bank, so there are benefits to it. I have no problem building a big cash flow on properties that you put people in on agreement for deed but I do have a problem if you are in a state like Florida where it could take you six months to get it back if they don't pay!