First off, I have to say that I absolutely love these forums. I've lurked around here for quite a while, and learned quite a bit. These forums have encouraged me to pursue REI. Because of my continous visits to these forums, I have learned about lease-to-own.
I'm 19 year old college student (Marketing Major) in Kentucky, and I'm trying to convince my parents to try to sell their home as a lease-to-own. It's been on the market for a little under a year, and the contract with their second realtor is ending soon. They moved into a bigger home a few weeks ago, and now have to make two house payments. The first realtor brought in a recently divorced "buyer", and she had trouble getting financing, and that same realtor also knew someone that was in a similar situation, but she was never introduced to the house. This happened while the house was priced under appraisal, and fairly well above what was owed.
Fast forward to a year later, and they have a "famous" realtor who I believe is very intelligent, and is trying very hard to sell that house. As of now, no offers have been made with that realtor. Most showings come back with "It's too small!", or "I don't like the yard.", but most of the time, they can't get any feedback from the other agents. At the moment it is priced under appraised value, and right at break even plus commissions. This price is right at other prices in the immediate area, and it is definately not overpriced.
The contract is expiring soon, and I am trying to convince them to do a lease-to-own, that way it will help them make both payments because it is simply not selling the traditional way, and making a payment on an empty house is a waste of money. I'm met with the following resistance.
I want it sold and out of our names.
It's too much of a hassle.
I'm afraid that someone will get in there and trash it, and then we'll be out the money trying to fix it.
I need my credit to be better.
I don't have time to take people to court to get them to pay the rent.
I want it sold and out of our names.
I don't want to be stuck making the payments while it's empty.
I've told my mom, "Expand your mind a little, you're stuck in the middle class trap, you're caught up in the rat race!"
She told me, "That's exactly where I want to be."
This is obviously becoming more of a psychological issue than an economic one. I'm wanting to collect $5000 up front from a lessee, and price the rent slightly above what they are paying for the mortgage, and I believe the rent market will handle that price based on apartments renting close to that amount. The final selling price might be a grand above what it is now (maybe).
Is it worth a shot to try it in this situation, or do I have this pie in the sky dream? Are their fears legit? Do you think there is any way to convince them?
first welcome to the forum!
second - a few key questions:
1. how much do you parents owe on the mortgage?
2. how much equity do your parents have in the property?
3. for the above - what is this based on? professional appraisal? realtor CMA (how good is it?)?
4. what are your parents plans for the future?
5. how can YOU make this deal happen?
6. what are the risks associated for YOUR PARENTS to become involved in this?
7. what about the option of your parents just renting it - and you managing it?
8. have you consulted an attorney re: the asset protection issues associated with each strategy?
also - you say they're carrying two payments - that means there's a mortgage on the property - lease options violate DOSC - which could accelerate the loan if the lender found out about it - no matter what anyone says about this issue - it's a reality that COULD happen. if you don't know what DOSC is, pm me or look for it on this site or other sites.... :D
You have a lot of ambition as I can see. But you're off track. First, and trust me on this. Never ever go into business with friends. And when it comes to relatives, especially parents, don't give them advice, and definitely don't ever go into business with them. They're not REI's, and your likelihood of convincing them to somehow become REI's is a waste of your breath. Dont' even bother. All they know how to do is work or whatever they do. You're the one who wants to become a REI, not them. So let them sell it.
Lease optioning is not a good idea anyway. You only lease option if the market is so utterly bad that you can't sell, so you have to resort to finding people who don't have money. I would never ever ever consider lease optioning anything. And who ever told you lease optioning is good, is crazy. Either rent it, and keep the equity, or, sell it, get all the money now and use it for the next investment. But why finance the purchase of someone elses house. That's the worst situation you could be in. Which is why you never want to even go there.
However, that being said here's what I'd suggest. Tell them that you want to become a REI, and that you want to start by flipping a house. So ask them that after they sell off the house, if they can give you a small loan and help you to buy a house which you can flip. (now this would be a 1 time thing, and if you have any other way then use that first), but at least this might be a way for you to get a downpayment to buy a house. Then once you flip it, you'll pay them back and you'll use the rest to do your own flips, never going into business with them again, because it is risky to involve family. But it sounds like in this case they're about to come into a great deal of money, and you might only need like $10k of that money to get your first flip off the ground.
But my friend, please do not advise them to lease option. Who on earth got this lease optioning stuff into your mind? Lease optioning is a form of financing someone else's purchase. That's crazy. It's as bad or worse than carrying a VTB. You only go there if there's absolutely no other way. What you should do is get a month to month renter in there to cover the mortgage. Meanwhile continue trying to sell it using the MLS only so that thousands of realtors will have access to it. I would never ever lease option anything. Also don't give any friends or family advice on financial matters. Trust me on this....if you want to lose friends, lose family members, and or damage those relationships, then by all means give them advice on financial matters and go into business with them. Because once something goes wrong, and it always will, and their's a disagreement, then this priceless relationship becomes tarnished and damaged. Never ever go there. You can put an ad in the paper or do some networking at a REI's club to find partners or investors, which if the business plans fail and they get hurt, and never want to talk to you again, is no big deal. But if you're own parents and or friends don't want to have anything to do with you, well that's got to be the worst. And people make those kinds of mistakes all the time in life. So learn from others. Just watch those Judge Joe Brown episodes where two relatives never want to talk to each other and are now suing each other over a small loan. Never do business with friends or family. Why risk a priceless relationship over a few hundred or thousand dollars? That's insanity. Also don't even give friends or family financial or business advice. Because if they take your advice and for some odd reason it doesn't work for them and they end up losing their shirt, then they'll blame you for it, at least partially. Friends and family should be there for fun times, good laughs, holidays, get togethers. And when it comes time to do business there's plenty of very knowledgable people in the industry, or else people with deep pockets that you can find out there who you can start building business relationships with. But keep them separate. Anyway enough said.
there's nothing wrong with lease-optioning, or maybe doing a wrap, or a seller carried second mortgage (as long as it's legal where you're at). the only real issue is how it fits into YOUR goals. i've been stuck making payments on my rehab for a year; doing some creative selling has definitely crossed my mind.
"You only lease option if the market is so utterly bad that you can't sell..." you said it's been on the market for a year. only you (and your parents) can decide if a year means an utterly bad market. i would imagine the answer is yes. the best part of selling it with a lease-option (or otherwise), is that you give them the responsibility for upkeep. make it a balloon note with the balance to be paid in 5 years (or whatever), meanwhile they're paying the mortgage and giving you a little bit extra. a decent downpayment should put some change in your pocket, and cover potential damage should they back out of the deal down the road.
as far as this being crazy, some family friends have been doing this for the better part of 30 years (combination of rentals and lease-options), and they are doing very well for themselves. and they have enough equity AND cashflow that they've been semi-retired for a long time. also, i believe all cash mentioned that he's been doing this lately. search his posts.
To answer some questions, there is a little professionaly appraised equity, BUT, the house was bumped down in price so many times in the past year that the current price pays off the mortgage, and realtor commissions leaving nothing extra. I'm worried about this because it leaves no room for negotiation, list price is minimum acceptable. When I get off of work later tonight, I'll do some more reading (shouldn't be posting right now).
drweltman, I'll have to research wraps, as I have no idea what they truly are, but I'm growing increasingly pessimistic as to convincing my parents to do anything more than stick a sign in the yard and wait.