Real Estate Investor · Raleigh, NC · Member since 2012 · 427 posts · 297 votes
Hi,
I have been thinking about different ways to get some rental properties for a few months. I was thinking a good way, before the market really rises, is get some Subject To or under a lease option, with the option hopefully at 5 years, and then renting them out for more than the payment.
I know Karen Rittenhouse started this way, with Subject To's, from her Podcast, which I swear I listened to 5 times at least. It is inspiring and even more so that she lives 2 hours down I-40 from me (I am in Raleigh, NC).
Is this still a doable strategy in this rising market? In Raleigh houses are going fast and prices are rising.
There seems to be a lot of Lease Options and Wholesaling Lease Options posts, but what about using them to build a buy and hold strategy? And Subject To's? I am hoping to get two or three properties this way to start my land lording career and continuing to grow as I learn how best to manage tenants and workloads.
I bought a Wendy Patton book about these as well, which I am about to read again (I read it a few months ago).
Real Estate Investor · Raleigh, NC · Member since 2012 · 427 posts · 297 votes
13y
Brian Gibbons First of all I want to say I read quite a few of your posts yesterday and they were very helpful. Thanks for all you contribute. How do you feel about getting buy and hold properties with them? From what I saw mostly you do assign lease options (which would be cool to generate cash for me now)
I figure if I can get in at an OK discount I can save cash-flow and build equity (as well as save money from my big boy job) to convert the options into purchases as long as I can get enough time Plus any money I make from quick flips I can put towards my portfolio. Do you do this much? Or do you know people who do?
My goal is to have passive income set up in 10 years or so in order to allow me to pursue interests outside of my job. I will bust my behind the next 10 years to get in this position.
Dawn A. that is a bummer. Dang Roy Cooper!!! I guess there wasn't even a choice since he ran unopposed.
Eric lease option lend themselves to both sandwich (hold) and wholesaling. You can wholesale lease options just like you do ugly houses. Lease options are a great place to start since they require no cash and no credit. By the way the only place where lease options present a problem is in the state of Texas. You can do them but you better consult and attorney first.
Best of luck.
Joe
Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
13y
Hi Joseph Bodek,
Texas Lease Options have changed some laws in 2005 - 06, but the expert here in TX is my former LO student John Jackson who lives there, and does hundreds of them.
Investor · Greenville, SC · Member since 2011 · 44 posts · 10 votes
13y
Eric F. You are doing very well. I loved Karen's podcast and she too got me very interested in subject to's. I wish you a prosperous rei career.
Brian Gibbons do you know of any LO experts in the Las Vegas market? What light can you shed on how easily LO's can be done on this side of town? Thank you in advance.
I have no doubt that your student does a great job in Texas however after reading the law and speaking with an expert real estate attorney in Texas I figured the risk was a bit more than I wanted to take. After all there are 49 other states so I chose the path of least resistance. Thanks for the info I'll send my students to you if they want to do business in Texas.
Best,
Joe
Real Estate Investor · Raleigh, NC · Member since 2012 · 427 posts · 297 votes
13y
After Dawn A. 's post I have decided to get a lawyer recommendation from my local REI next week and then meeting with the lawyer to make sure I understand all the laws. A small price now sure beats a big price in the future.
I wish I could do an @karen rittenhouse but I can't figure out how to unless she posts in this thread.
Flipper/Rehabber · Greensboro, NC · Member since 2010 · 623 posts · 615 votes
13y
Dawn A. - We still do them, just much more conservatively because of, as you said, our attorney general's attitude toward them.
Brian Gibbons - Add North Carolina to the list that you put Texas on. Two of the most regulated states for real estate investing. However, all of the Attorney Generals from across the nation get together once a year and, what starts in one state, soon spreads to all.....
North Carolina has created a law that takes jurisdiction away from magistrates when dealing with lease with option to buy transactions. Summary ejectment procedures must now be handled in district court rather than magistrate court necessitating hiring an attorney to evict a lease option tenant for breach. The court must first determine whether the optionee has equitable interest, and that all newly implemented procedures regulating placing a lease to own tenant have been followed. Both placing and evicting a lease to own tenant are now much more time consuming, costly, and difficult
The law was implemented in North Carolina in 2010, but many are just hearing about it. Senate Bill 1015 (SB1015).
Greensboro, NC · Member since 2013 · 31 posts · 5 votes
13y
Well I was looking at a few strategies for investing and the thought of rental portfolio with lease options came to mind, especially after just browsing Craigslist (was looking for a cell phone but ended up getting bored). Looks like a little more research on the matter will be required for this to work.
Flipper/Rehabber · Greensboro, NC · Member since 2010 · 623 posts · 615 votes
13y
Brian:
Nope, not a tool that will assist.
You can read the bill - SB1013. Not that long, not too complicated. Here are the important passages for this conversation. By the way, we were personally involved in crafting this legislation for over 2 years - even hired a lobbyist. Without our protests and involvement, the intention had been to make lease options illegal-100%-period.
""Chapter 47G.
. 9 "Option to Purchase Contracts Executed With Lease Agreements.
. 10 "§ 47G-1. Definitions.
. 11 The following definitions apply in this Chapter:
Covered lease agreement or lease agreement. – A residential lease agreement that is combined with, or is executed concurrently with, an option contract.
Option contract or contract. – An option contract for the purchase of property that includes or is combined with, or is executed in conjunction with, a covered lease agreement.?
Option fee. – Any payment, however denominated, made by the option purchaser to the option seller that constitutes the price the option purchaser pays for the right to buy the property at a specified price in the future. Option purchaser or purchaser. – An individual who purchases an interest in property under an option contract, or any legal successor in interest to that individual."
Our attorney general's office and their interpretation stated that ANY option contract at ANY time was considered to be governed under this law.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
Karen, looks like a straw man deal here. You lease the place and live there, I have no interest in the lease. I take an option on the property. Thought comes from the fact that I did options on rentals that had tenants that I had no relationship with, but offered them an opportunity to buy with an assignment of the option. In that, the option is not made in connection with, at the time of or related to the lease.
For any option to be valid we need an option price and a stated sale price to buy, that alone doesn't seem to exclude doing an option.
I'd say too, to do these where you are it simply means the optionee needs to be qualified to buy, not a bad thing.
How do they look upon the old contract for deed or land contract there since they don't care for lease options, are all installment sales under a foreclosure? If so, why not incorporate the terms of a deed of trust and use a trustee to follow as a foreclosure under the same terms as if it were a note and deed of trust? (Might as well go to the Sub-2, convey and carry a second).
I doubt such laws will spread to all states as some states, like MO. have had long standing with contract sales, especially in rural areas where bank financing is hard to come by, especially on residential farms. Too many of our state pigliticians are in RE. :)
Investor · North Richland Hills, TX · Member since 2011 · 789 posts · 403 votes
13y
In Texas, the main gist of the final bill was to protect the buyer from getting into a house that was in FC or from a seller not making payments.
There were other smaller things, such as not withholding a rent credit for a late payment, not exceeding 8% of the monthly payment for the late fee blah blah blah.
But we don't have to foreclose here.
We do have to send a Notice of Default, so they have 30 days to cure, then we can evict.
Fortunately though, I don't remember the last eviction we did.
That comes down to screening the applicants.
In Texas, the big drive behind the bill was the low income housing authority...(I wonder why there isn't a high income housing authority?) lobbying 2 Democrats, one in the house and the other in the Senate to help Hispanics (for the PC police, that means people that moved here from Mexico) from getting ripped off.
Typical story of a few bad apples...
Karen Rittenhouse I believe in NC the option has to be filed at the courthouse doesn't it?
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
I'd suggest, as a buyer/optionee that you'd always file a notice or memo of the option.
The high income housing authority, I thought, was Wall Street. ;)
BTW, big difference between Sub-2s and a sandwich lease, building a portfolio of rentals you're likely to get squeezed in that sandwich, you're over leveraged, need to be in a position to buy at all times. I can see suffering with one or two in the short term, not for the long run. :)
Investor · North Richland Hills, TX · Member since 2011 · 789 posts · 403 votes
13y
Karen Rittenhouse I actually understand the font size... In TX, the notices have to have specific font sizes....
Apparently people with bad credit also have bad eyesight...
14 pt to be specific.
If I had bad credit I'd want my notices delivered by a Brazilian bikini model...
You never see that in the statutes though...
Investor · North Richland Hills, TX · Member since 2011 · 789 posts · 403 votes
13y
Bill Gulley BTW- that was funny! Unfortunately the HIHA (high income housing authority) is the politicians, not wall street. The market makers are just doing their job, the politicians.....well...that's for another thread!
Investor · North Richland Hills, TX · Member since 2011 · 789 posts · 403 votes
13y
Going back to what Bill Gulley said...there is a big difference between sub-2 and sandwich LO's.
Before you do either, you better know what the heck you're doing.
Once you step into either one, you've taken the big plunge into liability.
That doesn't make them bad, but again...IMHO...not for the newbie.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
13y
Margin space at the top and bottom, sides, font size = pages to be filed with many standard documents = $$$$$$$ Filing fees
While it does standardize documents, many attorneys may have charges per page = $$$$$
Need a copy of filed documents from the Recorder= $$$$$
Fees to be charged are often regulated by statute at the state level and is in some places seen as a taxing issue, so they can manipulate an increase by requiring the number of pages to present a deed or assignment for example.
Probably a good thing, can you imagine what some business filing requirement might look like if your cable provider gave some public notice, you'd need a microscope to read it!
Nah, the Pubs try to oversee wall street, the Dems try to oversee HUD, together they mess up everything. (BTW, this is not a political statement, it's the order of battle plan for overseeing housing, LOL)
Back on topic, if one were to do some deal over a 3 to 5 year period, IMO, the SLO is by far the least desirable contract, a straight lease option would then follow, a contract for deed would be better and the Sub-2 would be the best since title is conveyed.
The SLO is the oldest concept in tenancy, today it's loaded with liability and restrictions, really not a place for newbies to go at all. Doing the deal is not hard, it's living with the deal that has issues. :)
Flipper/Rehabber · Greensboro, NC · Member since 2010 · 623 posts · 615 votes
13y
John Jackson I so appreciate the fact that you've put a positive spin on the reason for font requirements.
I, as a too-often-burned-and-therefore-seeing-the-glass-half-empty skeptic, figure it is just a way for legislators to determine our contracts illegal and to be able to penalize and fine the crap out of us.
Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
13y
Originally posted by Bill Gulley:
the SLO is by far the least desirable contract, a straight lease option would then follow, a contract for deed would be better and the Sub-2 would be the best since title is conveyed.
I would agree TOTALLY to this, but add...
If acquiring - controlling,
Sub2 - best, then, it depends....
Lease Option Assignment
ROFR (Right of First Refusal) and a lease
Contract for Option plus lease
Contract for Deed
Wrap Around Mortgage - All Inclusive Trust Deed
Land Trust - Assigning Beneficial Interest
All the above have strengths and weaknesses.
Then LASTLY Sandwich Lease Option
You need to be a sharp REI with amazing systems in place to do a volume of these. And be in a rising FORECAST ABLE real estate residential market.
Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
13y
Originally posted by Karen Rittenhouse:
John Jackson I so appreciate the fact that you've put a positive spin on the reason for font requirements.
:)
Kudos to John Jackson
To John Jackson
John is not only a nice guy, he is a complete REI expert in Texas on many fronts.
He was my student in Lease Option Assignments way back in 2001 (coops, wholesaling lease options, all the same) being a Stock Trader with 2 little girls, stay at home dad. I have done that too, not an easy thing!
He spent probably in excess of $25,000 in legal fees to perfect Texas lease options, especially since Austin changed the rules on lease options.
You see, the crooks in REI in TX were bad guys, selling crap houses to Hispanics, selling on terms like rent to own and CFDs, the crooks not recording ANYTHING, foreclosing and evicting like the old West, and in 2005 Austin let loose on the public "executory contract" TX laws.
Bottom line, "scare the heck out of REIs selling houses on terms. Home owners too."
The difference between John and myself are a bit stark...
You see I am a strict teacher, ex Marine, taught Chemistry and Public Speaking in HS and college, really not THAT funny, and John is my opposite, he actually cracks himself up on a daily basis!
Many people do not know that John has done stand up comedy before, so that is the reason why he is so in love with himself! (kidding) He is funny in that "Repulican far right Texan" sort of way (you know the way Rick Perry is funny?)
Seriously, back to REI, not THEORY but DOING IT...
I would challenge anyone to surpass John in a couple of respects....
1. No one has been more carefully scrutinized by the Texas Real Estate Board as to his Lease Option Assignment business. The Texas Real Estate Gestapo https://www.trec.state.tx.us/ has looked over his business model and contracts and have given him an open pass to operate his RE business without a sales license.
2. He has few peers in FHA loan guidelines. He can size up a Tenant Buyer and estimate with CERTAINTY if and when they can get a mortgage.
3. He also can size a Seller that needs to COOPERATE with a "buyer in training" to avoid a problem over the course of the lease option.
4. He has direct mail to Home Sellers down to a science. No one does it better.
5. He really cares about his LeaseOptionClasses students. He wants them to win, even the insecure introverted ones.
There a few more reasons, but I will defer to Michael Carbonare for some really embarrassing stories that only he is privy too.
This is unsolicited compliment to John.
Now if I can only get that Remington rifle out of his Ford 150 pickup truck!
Real Estate Investor · Raleigh, NC · Member since 2012 · 427 posts · 297 votes
13y
Karen Rittenhouse John Jackson Brian Gibbons Bill Gulley
I want to thank all of you for the detailed posts in this thread. It is amazing how much great information I got from one post on this wonderful forum. I can't begin to imagine how hard it would be to learn just the information in this one thread without BiggerPockets. What a great resource.
Flipper/Rehabber · Greensboro, NC · Member since 2010 · 623 posts · 615 votes
13y
Brian Gibbons -
It sounds like we have a lot in common with John. We were investigated by our state Attorney General as well as the Real Estate Commission several years back and it is not fun. They gave us a clean bill. And, for years we've been involved with crafting the real estate investing legislation here in North Carolina. All of that intense involvement makes me passionate about lease options. People still want to argue about it and I say God bless them.