Investor · Denver, CO · Member since 2015 · 492 posts · 267 votes
I live here in Denver, but I have properties in Pueblo. I have a problem I’m needing some help with. I have a tenant buyer on a lease option. They are looking to move and have the option to buy at $57,000. They would like me to sell it to one of their family members. It’s their sister. Sale price to sister is $65,000. They would like to pocket the difference after closing costs and my pay off of $57,000. There are no agents involved so no commissions paid out. Can we use some sort of assignment fee to pay them out? I’m seeing if there is a better way then me collecting the full amount, and paying them off on the side. This will cause me to have to pay their taxes. What would you do?
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
8y
@Robert Herrera, my instinct would be to tell your "tenant buyer" to either exercise their buy option at $57k - or not. (If they do, it's then out of your hands. If they don't, then you can sell it to the sister directly for the $65k if she likes, right?) Is there some complicating factor? Cheers...
Investor · Denver, CO · Member since 2015 · 492 posts · 267 votes
8y
Brent Coombs the tenant buyer doesn’t have the ability to purchase the property at this time. Their contract is not up or anywhere near it. I would like them to profit from the deal as well.
Matt M. That’s not a bad idea, I may just do it that way. Write off for me, and they get paid. Thanks for the other angle I wasn’t seeing
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
8y
@Robert Herrera, I'm not a fan of "them" trying to profit off their own sister, so I certainly don't recommend that you help towards that end (at your own expense too).
You don't owe them. They signed your two-optioned Contract. I've said my 2c...
Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
8y
@Brent Coombs I don't know the specifics of this deal but don't assume that they are taking advantage of the sister. In this market, getting a deal without a bidding war would be considered a gift in most cases. Keep in mind, the property must appraise for the sale price since the sister is getting the FHA loan.
@Brent Coombs I don't know the specifics of this deal but don't assume that they are taking advantage of the sister. In this market, getting a deal without a bidding war would be considered a gift in most cases. Keep in mind, the property must appraise for the sale price since the sister is getting the FHA loan.
In that case, it must be Robert who was out of touch with the market, and he should probably take the opportunity to correct his mistake of originally undervaluing his property (once his tenants can't fulfil their buy option), thus, then being able to sell directly to the Sister, for more.
[Remember, Rent-to-own* Contracts are supposed to be more advantageous to the Seller than to the "Buyer", meaning that the sale price should always be higher than current market value!]
* Yes, I know "Rent-to-own" is not the correct terminology for lease-with-option Contracts...
These are just my random statements so take them for what they are worth.
1) If they are brokering a deal they should have a license. If not they cannot take a fee/commission for selling a property they do not own.
2) To save REALTOR fees (I charge my clients 6%). You are paying someone to "not market" your property 14%. To top it off you are trying to avoid them having to pay taxes on it.
3) Either you or them are going to pay Uncle Sam on this. Either you are paying taxes on the profit or they are paying it as income.
4) I suppose you could pay them 8K to buy back their option, then sell it to the sister for 65K
Investor · Denver, CO · Member since 2015 · 492 posts · 267 votes
8y
Brent Coombs I’ve been doing lease options for a while now. I picked this thing up for $40k. $5,000 down payment. I put in $0 in rehab costs. I lease optioned it for a $3,000 non refundable lease option fee and $60,000 purchase price. The tenant/buyer put $10k worth of repairs into the place. I am getting great Cashflow from the place of rent is $800/month and I pocket $450. This is a LONG TERM Lease Option.
The tenant/buyer is paying fine monthly and still has many years left to go. They aren’t just going to give the place up.
After the repairs it will probably appraise around the $65k price.
It Seems like you want me to be greedy, and screw over my tenant buyer. You want me to remove them, screw them out of the option fee, and the money they put into the place. Then you want me to pocket the gain of $25k after words.
I’m mean dang man, I wouldn’t want to do any deals with someone who doesn’t even put some moral thought over their profits.
Investor · Denver, CO · Member since 2015 · 492 posts · 267 votes
8y
Mike Cumbie 1) they just asked if their sister wanted to buy it, would I help them get some of the money back out of it. They already have possession and are not out actively selling the property.
2) There is NO Realtor needed. I know how to draw up a purchase and sale agreement. If a realtor gets involved then they would just be getting a cut and then the tenant buyer would only be getting the difference after that.
So basically giving a commission to a realtor for nothing as the deal is already done.
Please read my message again. I’m trying for ME TO AVOID paying taxes. I don’t care if they have to pay taxes. This is why paying them as a 1099 employee for the work they did works well for everyone. I don’t pay taxes in the money I pay them, and they are required to list that income on their taxes.
3) The point is that THEY pay the taxes.
4) That sounds like a terrible idea. What happens when I pay them $8k to get out of it, and then the sister backs out of the deal or something falls apart on the financing. Now I’ve been sitting in the property waiting to sell it, and paying holding fees to my mortgage company and utilities, etc. No thank you.
@Brent Coombs has been here for quite a while. He explained the logical business aspect. If you choose to allow someone to transfer their option that is your choice. It is not "morally bankrupt" to stick to the terms in an option contract. If you want to donate all proceeds to cancer research then you are more than welcome. It is your house and your clients option, you can both donate till your hearts are content. If you want to do it like everyone else let her buy the option (assuming it is assignable) from the brother at whatever price they deem fair and sell the option at the price originally negotiated.
At this point you are trying to jack up the price and have the government assume liability for the mortgage and "hide a fee" within the confines of it to someone who is not licensed to accept that fee. You two are no longer exercising a well placed option. You are selling your house at 8K over the option and giving the tenant the difference. Which is fine but you have to pay taxes on it or him and her could come to an agreement and you could sell her the house at the option price.
So long story short, he is being your wholesaler (OK no biggie, no issues with them) but there is a reason wholesalers only deal with cash buyers. It rhymes with "Portgage Blaud" when you try to do it the other way.
Investor · Denver, CO · Member since 2015 · 492 posts · 267 votes
8y
Mike Cumbie this is why I don’t like Realtors. You think every deal needs to go through you... so you can get a piece of everyone’s action. The price of the house is up because they did $10,000 worth of work on the place. I’m sure they teach you how push everything as mortgage fraud so people have to use you and your “expertise.” I’m not buying it. I think realtors have a time and a place for everything, and i have used them in the past. Having an agent involved in this isn’t going to make a bit of a difference.
If you read my posts you will notice I never suggested you use a REALTOR. And I have zero issues with people selling themselves. You can even ask many Wholesalers around here I don't judge them. As far as you deciding to wrap in a fee to a HUD-1 backed by a government loan, go for it. Calling someone else greedy while you are trying to work a system specifically designed to not allow it is what I was talking about.
If you want her to pay 200K in cash for it then fine have fun. You are welcome to. It;s the FHA loan that is the problem. If you read what is written you will see that. Wholesaler, FSBO or agent makes no difference but redirect however you want.