Potential Lease Option???

18 Replies

Guys,

I have been watching a particular home in my neighborhood for months now. This home has been on and off the market for about a year now (and sits vacant). I just so happen to drive by the home yesterday while the owner was building a deck. We had a about a 30 minute conversation and he even gave me a tour of the home. He pretty much stated the following:

- Owns Home free and clear

- the offers he received were low

- wants 330,000 for the home (which is about right for our neighborhood)

- Doesnt know if he wants to sell or rent (has not decided)

- Tired of paying the taxes on the home

I personally think he is emotionally attached to the home because he has but ALOT of work into this home trying to get this thing sold. After seeing the home it is surely move in ready.

I dont have the money to purchase this home outright, but I think its a perfect rental property. It is a great candidate for lease option. I would like to find a buyer that has bad credit, but has the cash to put down on the home. My question is, besides putting up a craigslist ad, how can I find that buyer?

You're saying that you don't have the money to buy it outright, I'm guessing that you mean for 20% down. If this guy owns it free and clear and is fixated on the price, you should see if he'd want to seller finance it for you.

If he would take something like 5% down at a low interest rate, perhaps you offer a alightly higher price in return.

I don't think seller financing would work because it wouldn't cash flow as he wants market price. A cooperative lease option is best when they are looking for market price, you simply get the assignment fee from your end buyer and are out of the deal.

Get an agreement on sales price, rental rate and length of option. Add the amount you want as an assignment fee onto the sale price and that's the price you find a buyer at. They take over your option, you keep the assignment fee.

Misty,

That is exactly what I want to accomplish. The question I have now is what come comes first? The contract or the Buyer?

I dont have a clue as to where I should look to find this type of buyer. Should I work this just like a wholesale deal? Get it under contract, then try to locate a buyer?

You have options when you are talking to a free and clear owner.

If $330,000 are comps, show him he can...

Sell with an agent and pay the costs to sell (commissions, closing costs, sellers concessions, vacancy costs, spruce up costs, etc) These frequently add up to 10% - 12% of comps.

I use a 3 column method.

See pic

Rent it out, deal with an "unproven tenant"

Sell on Terms in Virginia

  • Lease and option
  • Owner financing (note and mortgage)

Best part, there's no due on sale issue as there is with an encumbered property (lien)

I say something like,

"If you sell on owner financing, the new owner will pay all costs, PITI and maintenance. This cash flow asset is like an annuity payment, no management headaches, just cash the check.

"If you sell on rent to own, you turn this property into a property investment, with all the IRS tax write offs a property investor has. But you do have to pay PITI and maintenance until the the Tenant Buyer gets the mortgage. All Option payments are tax deferred until the property sells or option period lapses.

Learn the WHIFFMs for home sellers selling on rent to own from the IRS

http://www.nolo.com/legal-encyclopedia/top-ten-tax-deductions-landlords-29497.html

Medium banner reiskills 997   copyBrian Gibbons, REISkills | [email protected] | 818‑400‑3046 | http://MyREISkills.com

Thanks for the information Brian. That is so funny that you actually responded to this thread. I was just watching your videos on youtube on how to leverage a realtor to find tenant buyer.

Forever greatful if I can close this deal.

I just had an amazing conversation with @Brian Gibbons and he stated I should do the following:

- Do not force the lease option method on the seller. I should ask qualifying questions to get his mind geared towards a creative solution such as the lease-option method or owner financing.

- Download his "Letter of Intent lease option assignment" document in the fileplace

- Recommended that I change my Business name (or create a new entity) to a name that shows that I am in the business of solving problems (i.e. Manassas Property Solutions, LLC).

I plan to give this seller a call tonight, I will keep the thread updated on my progress.

@Brian Gibbons is awesome!

Buyers are definitely the easy part of lease options, so you should always concentrate on marketing for sellers, they are harder to come by. Brian outlines a great conversation flow. I even use this method in letters to expired listings.

@Edward Beard I've seen loan programs available that will give you 30 year terms on 70%LTV (+/-). Some of these programs let you take a second and that second can be in the form of owner financing. I'm sure someone here knows way more about this than myself as I only recently became aware of this financing.

@Edward Beard lots of good input here from @Brian Gibbons and @Misty Weaver

If he has a $330k house that is vacant..and he's spending time building a deck...yes..he is attached to it. Emotionally I mean.

So I would play on that.

"I know you said you hadn't decided if you were going to rent it out or sell it...but I'll be honest with you..this is a wonderful home, and I just don't see this as a house you want to rent out to just anyone...I see this as a home that a family can take very good care of and love it and call their own. I see this as a house a family with a couple of kids will want to watch their family grow up in. I also would hate to see someone try to negotiate with you on the price and try to steal it from you.

Now...you said you own it free and clear, but I'm sure you still have taxes and insurance of course...hmmm..what if we could get you some upfront money, and structure it where you are cash flowing about $2,000 a month, in your pocket..you can do whatever you want with it. Go traveling, pay off any bills or whatever you want. And our company will find an amazing family that will love this house just as much as you do. And..on top of that, you'll get your full asking price, no haggling, and you don't pay us a dime?"

Wow!!!

I should write seller scripts...HA!

Originally posted by @John Jackson :
@Edward Beard lots of good input here from @Brian Gibbons and @Misty Weaver

If he has a $330k house that is vacant..and he's spending time building a deck...yes..he is attached to it. Emotionally I mean.

So I would play on that.

"I know you said you hadn't decided if you were going to rent it out or sell it...but I'll be honest with you..this is a wonderful home, and I just don't see this as a house you want to rent out to just anyone...I see this as a home that a family can take very good care of and love it and call their own. I see this as a house a family with a couple of kids will want to watch their family grow up in. I also would hate to see someone try to negotiate with you on the price and try to steal it from you.

Now...you said you own it free and clear, but I'm sure you still have taxes and insurance of course...hmmm..what if we could get you some upfront money, and structure it where you are cash flowing about $2,000 a month, in your pocket..you can do whatever you want with it. Go traveling, pay off any bills or whatever you want. And our company will find an amazing family that will love this house just as much as you do. And..on top of that, you'll get your full asking price, no haggling, and you don't pay us a dime?"

Wow!!!

I should write seller scripts...HA!

OMG, that stuff sells? lol

Seriously, thats awesome.

FSBOs want SPEED, FULL PRICE, NO HASSLES

Medium banner reiskills 997   copyBrian Gibbons, REISkills | [email protected] | 818‑400‑3046 | http://MyREISkills.com

"FSBOs want SPEED, FULL PRICE, NO HASSLES"

This is very important to understand...

People get so scared talking to sellers, but at the end of the day, here are the 2 questions sellers ask me...EVERY TIME...

"How much will I get, and how soon can you find someone?"

@John Jackson that is an amazing script. THANK YOU SO MUCH. I hope to close this deal, but even if I dont, there are so many takeaways from this deal.

Guys,

I just got off the phone with with the seller. I used the scripts provided, and I think the conversation went well. He seemed interested and asked several questions.

I dont have a letter of intent signed yet, but he stated his going to run it by his wife and that I can call him back in a few days.

Any suggestions on how I can real this guy in? Im going to stay on him.

@Brian Gibbons  

I have a very similar situation. A lady I spoke with today just completed a 2 month eviction of her granddaughter. She owns the house free and clear and no longer wants to deal with tenants. She also stated that she does not want to deal with a realtor and she would be open to owner financing.  She has a contractor repairing the damage her Granddaughter did. She said she would not try to sell the house if it was not fixed up, which leads me to believe she has some kind of pride in the property.  Im driving out to look at the house tomorrow to see what type of rehab she is doing and a better idea of the comps... Comps go from $70k- $117K. She wants to get a fair price for the house, but seems to be willing to take a reasonable offer. She seems to think its worth a little more than what I believe it is, but I think after a little convincing and a few comps from her area she will work with me. Any suggestions on how to deal with this???

Thanks

DW

@John Jackson  

Sounds great, Im interested in learning more about your training!

I have a question: 

@Misty W.   Who is on the hook for repairs/expenses in this scenario? Is the seller acting as a landlord, or is this more similar to owner financing where he is just receiving a check every month?

If @Edward Beard pursues a cooperative lease option, he would be getting a LO on the house and then assigning his LO contract to an end buyer. My thought was that once Edward assigns his option and is out of the deal, the seller may not want to landlord. 

Thanks for any feedback,

Tyler

I'll chime in.

Show the seller what his0her options are, 

selling w and agent and paying the costs to sell,

renting it out and dealing with an unproven tenant

or seller financing, which includes lease 2 own, sub 2 or a wrap.

Show the plusses and minuses of all choices.

Medium banner reiskills 997   copyBrian Gibbons, REISkills | [email protected] | 818‑400‑3046 | http://MyREISkills.com