BiggerPockets

Jonathan - It's great that you're out there making things happen, but why are you trying to put together sandwhich lease options?

If you do a deal like this, you are HAVING to rely upon the seller to do what they said they would do some time in the future. It's much, MUCH better to buy the property subject to so you have control.

I've only done subject to deals, and I've been fortunate in that regard. On one of those deals, the seller later declared bankruptcy. If I didn't control the deed, I may have lost the property with a contract buyer in place.

On another one, the seller through a fit that I hadn't refinanced the property a few years after I'd purchased the property. It's funny how their attitude changes once the threat of foreclosure goes away.

You don't want to do sandwhich lease options. If they won't give you the deed, walk away and find a seller who will. There is always another deal right around the corner.

Scott,

You may be passing up a lot of good deals because of your position against lease options. I have quite a few where a sub-to isn't feasible because of the payment being higher than rent (no go with negative cash flow) but I can lease it from the seller and they can bear the burden of negative cash flow (has to be reasonable so they don't experience financial distress). Unlike a sub-to there is almost zero risk involved, don't get me wrong I'll take a sub-to when the numbers work but I'm not going to walk away if I can't. Control without ownership, I can't say it enough.

Jonathan,

The way I present a lease/option many times is somewhere inbetween renting and selling. Show someone how much it will cost to sell through the MLS, 6% commissions, 3% closing costs, repairs, vacant house payments while it waits to sell, seller concessions, etc... If you can net them more with a lease/option then it may be an obvious choice (especially if they have to bring money to closing for a traditional sale).

Then show them the cost of renting: re-painting or re-carpet after every few tenants, people trashing the house, unreliable rent, high turnover, vacancies inbetween renters. Fix up when the renters leave and you want to sell, again vacant house payments while you wait to sell.

I don't know why they have the impression that you will be living there to start with, you should of course be representing yourself as a company manager, not a tenant/buyer. I usually make them a cash offer which they may or may not like, then I say "well we do have other options where you could make more money on the house." More money is the magic phrase to get them to open up to cash alternatives.

Jonathon,

I forgot to comment a few days ago. I would agree with Bill. If you have the option in escrow, you can avoid most of the problems with the seller not performing because if you set it up right, you don't need them to sign anything to exercise you option (i.e. a limited power of attorney for that particular property, among other things).

Jon, my first thought is that the sellers you are talking to about doing a lease option just are not as motivated as they should be. If they really are motivated, they won't care that you are putting someone else in the home so long as they are getting payed in a timely manner. Always disclose what you are doing upfront and in the negotiating process. Remember this is a business decision to you. It isn't personal. You don't want a deal that you can't make money on. You won't make their problem your problem. Tell them this and believe it. You don't run a charity service. You solve real estate problems for those who don't have the time or the knowledge to solve them themselves. Tell them this is your job and you are very good at it (assuming this is true). You can quickly tell them if you are interested and show them why and how. Be honest. You don't need to deceive to buy a home. Tell them what you can do, what options you have to help them and let them decide. It really is that simple.

Don't sweat it though. If they balk and give much resistance to you renting it, explain that them trying to rent or L/O the home themselves is an option and remind them of how dealing with tenants usually is not very difficult. After all, most people don't mind being woken up at 3 am for a leaky toilet do they (not that you will be doing this if you set things up correctly but you want them thinking about it. Reverse psychology)? Selling with a realtor or FSBO are also options. Remind them what that is going to cost (as described above or as you like) and how long a home could be on the market before getting a deal and then how long it will take to close before finally getting relief. Remind them who is making the payments all this time, whether they sell FSBO or with a realtor.

Then remind them that those are options and potentially good ones. Tell them they can solve their problem NOW or MAYBE solve their problem by listing it or trying to sell it themselves. Do they want to keep stressing about solving this problem or do they want to solve this problem NOW. Which option is better for you?

Shut up and let the cards fall where they may. If they give much resistance, they aren't motivated. Move on. As in the movie boiler room, "this is a contact sport. The more sellers you talk to, the better you will do." Don't waste time on unmotivated sellers.

Good investing

Mike C

Andy where is it written that you can't lease option your sub2. The deal i am working on right now that is my first exit strategy. I am buying the home for 5k sub2 and then gonna lease option it to the T/B for 900(no credit towards purchase, if they want to pay me 300 more i offered them 200 toward purchase) when my payment is only 750. In my market L/Os are going for around 900-1500 depending on the area and condition and all that.

Thats just my .02

Jonathan,

I always make it clear before I even go over to look at the house or meet with the sellers that I am an investor. It filters out any of the issues you will have when you get there. I say something like "by the way, because I'm an investor looking for homes in nicer areas, can you tell me if your home is in a nice area?" You will have better luck with that approach in my opinion.

To comment on a couple other things related to lease options, I never try to negotiate market rent or an "OK" selling price. Use some language when you talk to them like "I'm not even sure if I could do this, but If I could cover your payment completely for some period of time, then at the end of that time end up buying your house, is that something that would work for you or probably not?". I would never even bring up market rents and market selling prices, remember you are in it to make money!

Regards,
Brandon Gadish
Landlord Technology LLC

Johnathon,
Just be honest as possible but BLUNT, I tell people that Im a real estate investor and that they will have a rent check from me EVERY MONTH...even if my tenant doesnt pay. I also like to include the fact that any problems with the unit is my responsibility.