Real Estate Investor · Woonsocket, RI · Member since 2010 · 15 posts · 1 vote
Hello All,
Was looking at these after purchasing the King Cooperative Purchase System. He includes the contracts, but only shows how to fill out the main one. Process is,
1. Locate seller with little or no equity.
2. Full disclosure Coop Lease Option, where you get 90 days to try to get a tenant buyer to pay 3% to you a assignment fee to assign your lease option. This gets credited to the selling price, but your only paying 1-10 bucks for the option from seller. Option is non exclusive.
Ex. Seller wants 100k, you make the sale price 103k and take the 3 k.
3. Once tenant buyer is qualified, execut a lease and option to purchase between seller and yourself to have something to assign, then assign away. The question, which the owner of the course has not answered is do I put the $10 that I got the option for in the coop agreement, or the 3k that I will be collecting in the option price section of the option to purchase contract ?
Sean
The scenario is to tie the property up with an option, (making you a principal but in some states that's not enough, please keep reading) hire an agent/broker so you pass the "brokering without a license" issue. (not mandatory in most states, but great practice if you want to make sure you're covered as well as doing the deals hands-off)
Then, have THE AGENT locate a tenant/buyer (or you can on your own if you wish) and go into contract with the tenant/buyer as the landlord and THEN assign your interest to whomever you wish.
Or, simply go into contract "as" the tenant/buyer an assign everything to a new tenant/buyer. aka a cooperative assignment.
I've hired the best attorneys in the state of MI (which is a high compliancy state on real estate brokering just ask Bill B, he knows) including the Board of Realtors attorney who once represented us in court and helped put the Cooperative Purchase paperwork together. (So that's where it came from) And finally, all of my attorneys that helped put the program together were all also real estate attorneys as well as brokers.
There's a lot of other issues to discuss also, instead of just brokering without a license. Such as, do some mortgages have clauses that claim an option "is" construed as equitable interest and violates their due on sale clause? As a private lender I have personally put clauses like that in my mortgages so that's another question to ask a seller when tying up the property, i.e. can I see your mortgage to make sure we can even do an option lease/option?
Would this protect you in any way? Not if you're doing an assignment, but it's good practice in order to look out for your seller and tenant/buyer.
So, that's my two cents. But again, these guys are right because in a state like MI the typical law is that if you "sell" (grey area since you're never taking ownership) more than 5 houses in a year you need to have a broker's license or be REPRESENTED by a broker. I chose the latter because it's easier and you're doing what the state is asking you to do whether you need to or not. Better safe than sorry in my opinion.
Although Financexaminer has pinned me as a guru possibly selling a sham course, (which I'm not offended at all because I wholeheartedly agree. Most gurus out there have never even done a deal!) he/she's correct in the sense that you should contact an attorney about these issues so you can at least move to the next phase and do some deals!
Hope that helps,
Adam
PS I'm always here to help you so don't be afraid to ask!
PPS I've done deals in at least 20 other states with students for about a decade now so I can assure you we've exhausted this issue. I hope that helps.
This looks, feels and smells a lot like a listing agreement. I've run this by my state commission in CO and they clearly said they would go after someone doing this.
On the other hand, a sandwich lease/option would be fine because you are in the middle as a principal.
The main difference is that you are at risk. In the co-op scenario you are putting nothing at risk.
This looks, feels and smells a lot like a listing agreement. I've run this by my state commission in CO and they clearly said they would go after someone doing this.
On the other hand, a sandwich lease/option would be fine because you are in the middle as a principal.
The main difference is that you are at risk. In the co-op scenario you are putting nothing at risk.
Thanks Bill, So the only way a state board would not come after me is I do a sandwich and stay in the middle til either the sub lessee/optionee buys the property or lets the option expire ?
There are people out there offering courses that either have you doing an assignment from your lease option to the end buyer/tenant, or just leasing the property, once you have the option to the end buyer/tenant with you as landlord then assigning that back to the seller.
Not legal ? or grey enough to draw the attention of state boards ?
Assigning a lease back to the seller appears to me to be an attempt to circumvent any property management requirements by a non-employee....meaning a real estate license.
Seems you had the basics of the transaction above, you need to act as a principal and stay between any lease arrangements, IMO. Don't bother with guru programs as the schemes are not always compliant in all states (If any at all, LOL) Bill
Well, according to these guru's, having an option means you are a principle. It is a grey area which can be taken care of by using a broker to find and qualify the end tenant/buyer.
Either way you have an assignable lease purchase option, that you are either assigning to the seller or the buyer based on how you structure the deal.
How would this be any different then signing a P&S with the seller with a $10 emd, then assigning the contract to an investor ?
I think you misunderstood, I agree that you need to act in the capacity of a principal. A Lease Option is an asset to the extent it has a value below the market rate, if that can be establisheed, so you can certainly sell it.
Looked to me as if you were getting an option, getting a tenant/buyer, then assigning it back to your seller, if that's the case, your option can easily be seen as a sham transaction in order to locate a buyer/tenant for your seller, thus circumventing the requirement to hold a license. Ask an attorney who deals in your area, local custom will prevail. Good luck, Bill
Sean,
I personally called the Real Estate commissioner in my state and and he told me that this practice is totally acceptable. Each state has it's own rules, but basically an option gives you equitable title. That title allows you to market the property. If there is any question as to legality its probably good to consult an attorney, but it is a common practise.
I just had a buddy to the exact same deal here in my town. He got an option with a local bank and found a buyer. He screened the tenant and cleaned up her credit and then got her a loan to purchase the property. He made over $12,000 on the deal and no one is even thinking of calling it illegal.
Sean
The scenario is to tie the property up with an option, (making you a principal but in some states that's not enough, please keep reading) hire an agent/broker so you pass the "brokering without a license" issue. (not mandatory in most states, but great practice if you want to make sure you're covered as well as doing the deals hands-off)
Then, have THE AGENT locate a tenant/buyer (or you can on your own if you wish) and go into contract with the tenant/buyer as the landlord and THEN assign your interest to whomever you wish.
Or, simply go into contract "as" the tenant/buyer an assign everything to a new tenant/buyer. aka a cooperative assignment.
I've hired the best attorneys in the state of MI (which is a high compliancy state on real estate brokering just ask Bill B, he knows) including the Board of Realtors attorney who once represented us in court and helped put the Cooperative Purchase paperwork together. (So that's where it came from) And finally, all of my attorneys that helped put the program together were all also real estate attorneys as well as brokers.
There's a lot of other issues to discuss also, instead of just brokering without a license. Such as, do some mortgages have clauses that claim an option "is" construed as equitable interest and violates their due on sale clause? As a private lender I have personally put clauses like that in my mortgages so that's another question to ask a seller when tying up the property, i.e. can I see your mortgage to make sure we can even do an option lease/option?
Would this protect you in any way? Not if you're doing an assignment, but it's good practice in order to look out for your seller and tenant/buyer.
So, that's my two cents. But again, these guys are right because in a state like MI the typical law is that if you "sell" (grey area since you're never taking ownership) more than 5 houses in a year you need to have a broker's license or be REPRESENTED by a broker. I chose the latter because it's easier and you're doing what the state is asking you to do whether you need to or not. Better safe than sorry in my opinion.
Although Financexaminer has pinned me as a guru possibly selling a sham course, (which I'm not offended at all because I wholeheartedly agree. Most gurus out there have never even done a deal!) he/she's correct in the sense that you should contact an attorney about these issues so you can at least move to the next phase and do some deals!
Hope that helps,
Adam
PS I'm always here to help you so don't be afraid to ask!
PPS I've done deals in at least 20 other states with students for about a decade now so I can assure you we've exhausted this issue. I hope that helps.
Adam, lol, if you read my posts, you'll see that I am, shall we say, anti-guru and I use that term for most things that are unconventional. IMO, there is nothing new in RE, just new spins on the same old stuff. So when I see some strategy that has a name, it goes to my guru file! One big problem is that many "progarms" are not compliant in all states. We all don't live under the same rules. Good luck, Bill (That would be a he)
Where are my manners? I see that you, Adam, are brand new to BP, welcome! Look forwared to your posts and strategies. Hope you fill in your profile a bit more so we can see who you are, what you do and how long you've been at this game.
I like your suggestion of getting a RE agent/broker, but it's not really necessary if the deal is structured properly. The due on sale happens to be one of my favorite subjects! I have never had a due on sale clause used to accelerate any mortgage in over a thousand deals, most all have threatened, none have won, but I do things differently too. I tell them I'm doing the deal before it's done! That's another story. Doing the lease with an option that has value is certainly an equitable interest in the property.
If you are selling programs on this strategy, I, we I'm sure, would be interested in your thoghts on the issues. But fair warning about referring to the best attroney in any state, I'm sure that guy has been wrong before, so if he is off, don't expect his opinion to win me over. I view most bank and real estate attorneys as just a source of good sporting fun. Have a great day and again, welcome to BP! Bill
Speaking as a man with experience with Adam, he knows his stuff and should be well listed to. Him and Michael Carbonare and Claude Diamond are the kings of the cooperative lease option assignment. Adam its great to see you here come back more often. Herbster
First off, I love the great attitude and opinions so far on the forum and can't agree more. REI is ever changing and what may be good today, may not be good tomorrow, including the people (and lawyers) giving the advice. (FYI Darius Barazandeh is one of my best friends and we both share this opinion)
Also, this is a serious confession, I mean serious confession, but I haven't sold the Cooperative Purchase as a national speaker in years because students just weren't doing enough with it, or without the kind of support that became almost impossible to financially afford. And, taking someone's money in the tune of $1500 a shot wasn't helping my conscience so I moved my "support" towards allowing us to get past our constraints first and then get out there and do deals. This has been my main focus ever since.
As you may or may not know, when you speak at a club, convention, hotel etc, there's certain business and promoter costs involved. Somewhere in the tune of 60% or more of your gross profit can be lost. So, when you take on the full-time psychological responsibility (real, no bs hands on support, not crappy "go look on page etc, etc") of a student and only received a portion of the funds, it can become a rough business to continue if you're the only one making money.
However, I brought the course back for next to nothing because, and I mean this with all sincerity, I started to see some people (who's names I will not mention) teaching lease option assignments on a national level. I saw them charging in excess of $600-$900 (Like I used to) and KNEW they didn't have the capacity to support a student the way someone who's been there "emotionally" can.
What I mean is that I've been there, I've done it, I've won massively and I've lost massively.
My profession now is understanding people, how we interact within certain environments and how we can truly prosper both financially and spiritually with one another. This kind of support doesn't come from people who only know the technical steps within a transaction. However, it does need to be available to the student when they're at the opening gates because this is the true "wealth" that we're all looking to build.
This is why I'm back on these boards. To offer my support and let people know that it's not about a "step-by-step" program, but it's about people, altruism and the important variables of give and receive.
So if there's anything I can do on this scale, this is my highest and best use to you and myself as I truly enjoy it and the rewards are beyond measure.
Regards,
Adam
That's good to hear Adam, will be looking forward to your posts. In you support with your students, do you interact, personally with the students and their buyers and sellers?
In my mind, I just can't grasp how someone can read something in three days with little experience and go do a lease option on any property and do so that will have a great liklyhood of closing as agreed. Most buyers you get into any installment contract generally need alot of hand holding over the term to make them work as palnned.
That's good to hear Adam, will be looking forward to your posts. In you support with your students, do you interact, personally with the students and their buyers and sellers?
In my mind, I just can't grasp how someone can read something in three days with little experience and go do a lease option on any property and do so that will have a great liklyhood of closing as agreed. Most buyers you get into any installment contract generally need alot of hand holding over the term to make them work as palnned.
These are assignments, get a rental agent to qualify an end tenant buyer. Get the LOA signed by them, get paid the emd, and assign it back to owner, and walk away.
This is not a slo.
Sean, do you mean, get an option from the seller
then get an agent to locate a buyer/tenant
get the emd for your option? what is your interest that you're being paid for?
then assign the option excuted by the tenant/buyer which was found by an agent and assign it back to the seller?
That's good to hear Adam, will be looking forward to your posts. In you support with your students, do you interact, personally with the students and their buyers and sellers?
In my mind, I just can't grasp how someone can read something in three days with little experience and go do a lease option on any property and do so that will have a great liklyhood of closing as agreed. Most buyers you get into any installment contract generally need alot of hand holding over the term to make them work as palnned.
Yes, I used to interact directly with the student and their deals. (This is why I knew so many different state specific laws) When I joint ventured with them, they always did a deal. But that was a mistake, as we all know, because then the real lessons of "self sustainability" wouldn't be learned by the student if I were doing the "emotional" work for them. Once I was gone their activities would stop, or they would require more help than I was being fairly compensated for.
What I do now is offer email support that is especially helpful when the student ties up a deal. The biggest questions I get are those of reassurance of the process, which is seriously simple.
It is literally something you can do in one day. I know that sounds nuts, but it's the "just getting out and doing it" that is by far the one real constraint.
We all seem to stall and go into paralysis when we have uncertainty. Resistance is almost always just a lack of certainty. But, it's the experience of a new environment that allows us to be able to navigate within that uncertainty. Once that experience happens, it becomes comfortable and automatic over time. This is success.
So again, with such a small price for a product, I no longer offer one-on-one support in such a way that I'm involved in the transaction. And in some cases (such as Sean's) I'll just pick up the phone, call and have a conversation to help out where I can. (like now for instance) But, it's at my own discretion or, if the student is sitting in front of someone and needs an emergency question answered. If I'm available, of course.
Regards,
Adam
Adam, seems you and I are in the same business, of sorts. I don't have a program that I have named and people e-mail and call be for assistance and I don't cahrge them anything.
As to the program, I didn't get an answer on, I'm sure your attorney knows wht a sham transaction is. It depends largely on how a state writes the RE license law, some are more specific than others.
In Missouri, anyone who "facilitates" a transaction needs a license. IMO since nothing is accomplished here that the owner could not have done, like contacting an agent, seems the deal does nothing more than to allow the investor to step into the transaction by obtaining an option (in this case basically a net listing) tyhen arranging what is nothing more than a co-brokerage arrangement with an agent (I assume the agent gets something) and then after a buyer is located and the agents ar paid, the deal or contract is assigned back to the owner/seller.
If it looks like a duck, quacks like a duck and walks like a duck....it's a duck! IMO, It's a sham transaction to act in the same capacity as a listing agent for a fee, a net listing, where the seller says I want this price and anything you get above that price, you can have as your commission (which is illegal in Mo.).
SInce there is never an intent by the investor to excute the option or purchase the property, and the only intent is to find a buyer to turn back over to the seller, it's obvious it qualifies as a sham transaction. Anyway, if you can legally circumvent the intent of the law, more power to you!
If your student were failing to understand the "emotional" side of the deals with others involved, they weren't getting enough knowledge to understand the the deal sufficiently to convey the types of assurance buyers and sellers need to be comfortable. It takes more time to actually teach someone why than it does how. That's one reason I have a problem with many of the gurus out there, as you said they teach steps.
Doing real estate deals is not about doing steps but understanding why people react the way they do, what makes them receptive to your "plan" why a transaction needs to be structured the way it is and why certain functions need to be addressed.
That's too time consuming for gurus, it's easier to teach steps, what to do next and who to call. And, that way, without them really learning the business, every time there is a new angle on an old way of doing something, they will need to call again!
Bill,
Flipping an option IS brokering from the view of substance over form and I agree with you completely. Everything is brokering. But, if tying up a property "as a principle" with the intent to locate a buyer and sell your interest were a sham, then wholesaling would be a sham as well, which of course, it's not.
The word "facilitate" is clearly doing something for others, not one's self, which is not what is happening when you take the part as principle within a transaction.
However, I am not disagreeing with you, but this argument should NOT stop someone from performing a quick turn real estate acquisition ONLY if they are in accordance with the law.
Intent to locate someone and assign your interest can easily be seen as brokering because of this though. However, if you compare it to the true definition of brokering, you can see why most states don't consider it brokering or their rules are in a grey area. Brokers are under an arrangement to work for the seller in order to locate a buyer with no principle interest attached to the property. That's what makes having a principle interest so cloudy on the issue unless you truly compare it to brokering then it's not so grey.
The state enforces the law in order to govern a favorable outcome for all parties as well as collect fees for licensing. However, even brokers work within a grey area because they're not allowed to fill out contracts (as an attorney), but many still do.
So the issue has always been grey because of state lines and that's why you need to know the law in order to keep yourself clean.
The real argument is needing a license even if you have legal principle interest. (that is our argument correct?) And if the law says you must, then by all means I advocate getting one, or at least hiring a broker if that's the requirement such as with Section R339.22319 of the MI's DLGE Real Estate Redbook.
Truth be told, sellers and banks need us right now and if a student gets advice that these types of deals are "illegal" or a "sham", then I would look for another attorney and get second opinion.
As for knowledge and emotion, they are polar opposites. Too much knowledge can cause analysis paralysis, which is an emotional trigger for looping one's self into inactivity. The good news is that there can be steps put in place (such as simple, measurable non-monetary productive outcomes) that get the student close to the finish line with certainty and working within a new environment.
Again, this is my main focus and it has been added to everything I teach.
My two cents,
Adam
PS This isn't a new venture, I've been doing this for over a decade. ;)
I never understand all this effort just to "broker" transactions. Most brokers are not financially successful, most of the money is earned by a few super brokers. Why this enormous time and effort to be able to broker property without a license. If brokering property is what you want to do, why not just go get a brokers license?
I agree Don. I'd say to that doing a deal just because you think you can justify it while taking an illegal approach is not is not the way to conduct business. This is not selling your interest in a property, since the intent is to give it back to the seller after some equity has been skimmed for your facilitating a deal for the seller.
Kind of a side note to anyone who relies on another saying that their attorney "approved" any system. You can hand a contract to any attorney and ask them to review it and ask if it's "O.K." The attorney will charge you a couple hundred bucks or more and hand it back, maybe a week later, saying something like "this contract is O.K. in it's current form" that is not saying the conditions, covenants or intent of the subject startegy or business derivied out of the contract will be lawful to perform, it is simply saying the contract meets requirements of contract law. Attorney can't bless something when they have blanks in the contract, when conditions can be set in the deal, they need to see the deal after or during the transaction.
So if an attorney tells you, "hey, you can use that" well, you bet you can, and you can then get in trouble and then what happens(?), you call the attorney back to get you out of the mess and he starts his clock running again!
Adam, I understand why you can't or won't acknowledge the basis of my opinion, that doing the deal with the intent to assign it back to the seller is nothing more than a side step claiming an equity interest to circumvent the license requirements, but's that's OK.
I don't see this as getting a buyer to bend over too far because of it, maybe the seller spending much more than he might have had if he had just listed the property conventionally (that depends on how greedy the investor is). There is another issue of ethics on the part of the Realtor and how listing a property with a non-owner plays out, but that is the Realtors' determination. And no, a real estate broker in many states must have a written listing contract with the owner (in title) to advertise, show, etc. that property, I have never seen any state law written where an agent can list a property with any party that has an equitable interest in a property.
As Adam suggested, take this strategy to a local attorney (and I will add) that is familiar with real estate laws and transactions and ask for an opinion as to the function of the transaction, not so much as to the form of the contracts.
Adam, while I'm not impressed with this strategy or "progarm" I must say I'm impressed with your marketing and people skills, especially at your age and experience level. Good luck, Bill
Thank you.
I do not disagree at all with your opinions and sincerely respect them. There are always other variables and my examples are experiential not hypothetical. And I apologize because there's simply not enough information (or time) for a complete and thorough discussion on this topic, which is why people need to seek competent legal help, (per-deal) if at all possible.
The Cooperative Purchase fits a need and has been proven on the streets and in the courts. There is also a tremendous amount more to the program than just tying up an assigning a property to a seller or buyer. There are six strategies in fact, that cover everything from holding property as a rental, land contract investing and creating and collecting on notes. But for some reason the lease option assignment is hot right now and someone needs to have the kind of support that demands answers on topics such as this. It is, and has always been, a grey area and we've all done our very best, without compromise, to keep things legal, safe, and fair for all.
Another thing to consider on discussions like this is the intention of the discussion itself. One may see me as protecting my own self-interest trying to defend the position of a program/product that puts food on my family's table. However, it is the exact opposite and why I must agree instead of defend. The reason is because it is "I" that is holding myself accountable as the author of the program for the protection of the student. In other words, it is "I" that has taken the responsibility and utmost effort in helping the student utilize a program such as this and at the same time realize their true potential without getting hurt in the process, or worse, hurting someone else.
One last thank you to all on this topic.
I am better for the experience.
Adam
