Torrance, CA · Member since 2018 · 53 posts · 10 votes
Hello,
I’m just wondering if there are any investors who use lease options in the Southern California area. I’m a student of elite legacy education and I took the lease options training. In the training the trainer told me that lease options can work in any market it’s just they may not work with every property. I just want to know if there is anyone out there who uses them currently ?
@Jathin Reddy Good question. I was wondering the same thing.
IDK if there are a lot of lease options for residential and or owner financing stuff in the prime areas. I have seen these offered in softer type markets sometimes but in a strong market there is not a lot of need for buyers to deal with these alternatives much. I know of someone in Socal looking for some lease option on commercial properties but that may still be a bit of a pipe dream currently maybe IDK.
@Jathin Reddy Good question. I was wondering the same thing.
IDK if there are a lot of lease options for residential and or owner financing stuff in the prime areas. I have seen these offered in softer type markets sometimes but in a strong market there is not a lot of need for buyers to deal with these alternatives much. I know of someone in Socal looking for some lease option on commercial properties but that may still be a bit of a pipe dream currently maybe IDK.
Torrance, CA · Member since 2018 · 53 posts · 10 votes
8y
Matt,
I agree with you that this is a sellers market. It is definelty much tougher to find sellers who would be willing to do aterms deal. However, even then there are still people who do have circumstances where they may be motivated enough to do a terms deal. It’s all about finding those people and it probably requires looking in non traditional areas. But I appreciate your input.
I do not know what was meant by "Lease options can work in any market" but I think an owner who does a lease option in coastal So Cal is a fool.
I will run 3 scenarios:
Property appreciates like it has historically or worse for the owner appreciates like it has been appreciating the last 6 years: Tenant uses option and purchases the house. Original owner would have made a lot more profit if they had simply rented and then sold the RE after the outstanding appreciation. Realize this is the historical norm and if the future behaves similar to the aggregate of the last 60 years this is by far the most likely scenario.
Property is fairly stable: Tenant purchases and has some of the rent applied to the purchase. This scenario is the mostly even benefit scenario as the tenant leveraged their increased rent to make the purchase. The original owner is probably close to even (or at least what was planned) and the tenant is also at what was planned but got to apply some rent to purchase likely waiting for them to have the resources to purchase so the tenant is better off than if they had simply rented. This is historically the second most likely scenario.
Property falls in value: the tenant chooses not to purchase. The scenario that the tenant chooses not to purchase is the best scenario for the owner. The problem is that in the last 60 years there has been few periods of noticeable property depreciation in coastal So Cal. In this scenario the owner collected marginally higher rent and probably had less maintenance responsibilities than a traditional rent agreement. This is the only scenario that clearly benefits the original owner but the benefit is typically only some high rent amount.
In summary, the downside for the current owner is so much greater (loosing out to huge appreciation) and more likely to happen (historically the appreciation has been outstanding) than the upside (that the tenant does not exercise the option and the owner has been able to collect higher rent than a traditional rental).
I did know a couple of tenants in San Diego that had a lease options. Both of these tenants had poor timing and did not exercise the options due to the depreciation cycle of the mid/late 1990s. My view is both those owners got lucky but maybe they accurately predicted a lack of near term appreciation. I do not feel that lucky or that skilled to accurately predict the periods were coast So Cal properties are not going to have outstanding appreciation.
Therefore my statement that a coast So Cal owner is a fool to do lease options.
Torrance, CA · Member since 2018 · 53 posts · 10 votes
8y
Dan,
I don't know if the fool comment was directed towards me or the seller. Anyways when doing lease options deals I'm looking for sellers who are highly motivated aka they need to sell as quickly as possible. It could be due to divorce, medical emergency, job loss, etc. I understand we live in a sellers market so it will be tough to find these people. Therefore, I plan to look at alternative ways to find these people aka probate, FSBO, For rent ads, pre- foreclosures, etc. if you can find these people what I'm planning to do is to see if they would be willing to do a terms deal. If so I would prepare a list of documents explaining the terms. Then after me and the seller sign the documents I would gain control of the property without ownership through the lease option. Then what I plan on doing is to find a tenant buyer who wants to own a home but can't at the moment due to some circumstance. I understand that the LA market is hot so it will tough to find sellers. However, that being said, there are still plenty of people who need to sell and maybe could open to terms. I understand if you think I'm crazy.