Lease option?

Question

Hi, I currently am about to do a lease option on this guy who needs to sell his house quickly. I know a tenant-buyer who will easily give 10K to rent the place with 10% of his rent per month going into equity. Is it generally a good idea to do lease options or do you guys like to stay away from them?

Jason Hanson · Answer

One of the keys to success in this business is always giving a seller multiple offers.

First I give them an all cash offer which is always a huge discount off of their asking price.

Second, I give them a subject-to offer which is a much higher offer.

People may think they want all cash, but when they see that they make a lot more money with your second offer they take it a lot of the time.

Since I specialize in sub-2 I lead people down that path and make it very advantageous for them to accept that offer.

Mike Wilcbon · Answer

I partner with many investors that run into this.  I see if they can accept 80% of the appraised value and then I have them offer seller financing at 100% and buy the note for 80%.

I accept buyers with  500 middle scores and will give them a 4-8% interest rate over 30 year fixed.

They need 5% down, closing costs of less than $2000 and 1st months payments.

Michael Rossi · Answer

...and this is EXACTLY why I do not do sandwich lease options.  They are VERY risky because you are not in control.  I haven't agreed with much that Primo has said since he's been on this site, but I agree with him here.  If you're going to lease-option a property to a tenant-buyer, you need the deed so that you are controlling the property.

Consider yourself lucky that you didn't get into this deal.  What if you had done the deal and in a year your tenant-buyer exercised his option?  You attempt to exercise your option with the seller and he says he's changed his mind (like he's just done to you).  Your buyer sues you and you are forced to sue the seller to force him to perform.  Two lawsuits, a lot of money, and a lot of headaches!  NO THANKS!  This is something that happens with alarming frequency, but the gurus never talk about.

That doesn't make much sense to me.  I don't care what the ASKING PRICE is - that's totally irrelevant.  I want a HUGE DISCOUNT to MARKET VALUE regardless of how the property is being purchased.  I don't care whether I'm making the mortgage payment to the previous owner's bank (sub-2) or my bank directly (with a new loan), what I do care about is the amount of the payment and the amount of equity I will receive in the deal.  I'm not paying someone a "much higher" price or losing a bunch of equity to do a deal sub-2.  Real estate is about making money.  If I can make a more money by getting my own loan, then that's what I do.

Mike

Account Closed · Answer

Sounds like your biggest challnge here is to find another seller, quick, so you can help your $10K tenant buyer before he finds something else. I would get on Craig's list and call For Rent signs and call all the landlords you can and offer to buy their house sub-to or lease purchase. Good luck!

Jeff Fairchild · Answer

How do you guys usually respond to the seller when you first offer the lease option or subject to and they say that they dont want that and need a cash offer?

Jason Hanson · Answer

Motivation is the name of the game. You can't force someone to be motivated, however time always increases motivation.

So if this person is not ready now, make sure and follow up with them every two months and they may be ready six months from now.

Thomas Payne · Answer

sighhh. i'm thinking of stopping this deal altogether because now the seller doesn't want to do the lease option and is basically asking for straight cash (which is ridiculous for the area) even though when I called him last, he was very excited to do the deal. Well you can't make someone SELL his/her in a certain way so....

Anthony Sulecki · Answer

Does he know you are ready to move forward? Id tell him he can sit around, pray for a buyer, and pay for the mortgage, or he can let you handle it for him, right away.

Jason Hanson · Answer

I prefer to do subject-to transactions because I own the house and get all of the tax benefits, etc.

However, if I come across an owner who will not give me the deed,  and it is a great deal, then I do a lease option.

If you have a buyer who is ready to bring 10k to the table and all of the other numbers work, then it appears you are in a good position.

Lease option?

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