Suggestions for Learning how to do Lease Options

17 Replies

I need some suggestions.  I have been actively wholesaling for a month now and I am still looking for my first deal.  I am using craigslist and bandit signs to capture leads.  But most of my leads are people who aren't willing to sell at a deep discount, but are willing to come down on the asking price a little.  From what I've heard, these are deals all day if I knew how to structure owner financing and lease sandwich option contracts.   So I was thinking of calling a local rent to own company or investor and make a deal where I can bring them leads for lease options, and I learn from them how to construct the deals.  And we split the profits.  What other ways do you guys suggest I learn this skill?  I don't want to keep throwing away leads because more sellers are willing to take payments over several years before they sell at a deep discount.  Thanks.

@Lawrence Walker  

I find myself in a similar situation and I have taken to reading as much as I can from @Brian Gibbons   John Jackson and old BP blog posts by Jason Hanson.  Bill Gulley also provides a wealth of information and makes me realize that I am a complete novice when I try to decipher his posts.

The learning curve is steep, but if you listen to those people, the pieces of the puzzle start to come together.

Good luck.

I know the feeling @Lawrence Walker  . I am working hard on Wholesaling but I am thinking Lease Options are a better route. I know John Jackson and @Brian Gibbons  are really knowledgeable when it comes to that. I have spoken to them both and they both have helped me. 

@Lawrence Walker I used to be against JV ing and splitting a deal...because I've done it for so long...

I started seeing the benefit a few years ago. 

If you have a low equity lead, I can assure you we can make it happen. 

I have people in Mobile.

To start learning lease options, I would go to my biz site www.leasingtobuy.com and also spend a week or two on @Brian Gibbons   stuff!!!  reiskills.com  I believe....

He taught me back when I had hair....

@John Jackson is a wonderful teacher and coach.

Think of lease options as just 1 tool.

When you talk to sellers you are listening to them and providing possible solutions.

A. Pretty house, lots of equity.

B. Pretty house no equity.

C. Ugly house, lots of equity

D. Ugly houses, no equity

A. Pretty house, lots of equity.  this give you many tools, such as sub2, sub2 w land trusts, installment sale, lease option and assign, sandwich lease option, master lease, wrap - all inclusive trust deed, purchase option equity split, joint venture with the seller (dont buy it, jv and improve the property, and take your profit on the re sale).

B. Pretty house no equity. With no equity, you have less choices: Sub2, lease option and assign, wrap - aitd, master lease, etc.

C. Ugly house, lots of equity - traditional wholesale deal, either control and sell contract or buy with a) bank cash; b) private lender cash c) jv w doctor - bus person d) hard money lender; once you buy then you fix and resell.

D. Ugly houses, no equity - short sale with bank to create equity.

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Be the Doctor http://www.biggerpockets.com/blogs/3/blog_posts/17...

See my post "Be the Doctor with the Seller."  It is the only way to work with motivated sellers to assure success.

@John Jackson  I would like to learn more about how I can work with you when it comes to lease options here in Huntsville.  I do want to make money, but at this point education and knowledge is more important to me.  So I don't have a problem with splitting deals for a while until I am confident in doing the lease contracts myself.

Today I looked at a couple of videos by @Brian Gibbons  and found them very easy to understand and educational.  So thanks Brian for those videos and the post from earlier.  I am about to read your article on "Being the Doctor."  

I really do see lease options as another great investment option and I feel like I would be missing out on a lot of money if I didn't learn it soon.

@Lawrence Walker   If you bring me or @Brian Gibbons   a lead we can walk you thru it, and I have an agent in the Mobile area as well. 

don't worry about knowing everything before you do anything...

Here is your homework...

#1) Get a deal under contract

#$2) see # 1.

Then let us know so we can help you. 

Also, I hope the monitors here don't pull down my post, but realize leasingtobuy.com has nothing to sell, but shows  you real transactions. 

If you post a potential deal here on BP, I can assure you we can help. 

Just get a deal under contract, and as @Brian Gibbons  stated, it can be a low equity deal!

All you need is an owner that is looking at a PLAN B. 

YOU are PLAN B!!!!

@John Jackson  Sounds good, but where do I find these many lease option contracts? I understand not knowing everything before I do anything, but right now I don't feel confident enough to talk to a seller about these options to get a house under contract.  Does that mean I just need to read more about it?  Or do I just jump in?

Here is the flow of things...

1) send the how does a lease purchase help?

2) seller price sheet : the preliminary figures

3) call me or @Brian Gibbons     

@Lawrence Walker     go to my site leasingtobuy.com and look at the info and figures there...PLEASE understand...(this is really for the moderators here...) I'm not selling anything...just showing REAL deals!!!

Cash or Terms Discussion with Home Seller

If you sell with an agent, Mr Mrs Home Seller you will pay:

  • commissions 3- 6 %
  • closing costs 1-3%
  • seller's concessions, depending on buyer's financing 3 - 6%
  • spruce up costs - paint, carpet, landscaping, etc - to compete with other houses. .5 - 2%
  • Vacancy costs - holding costs - you have to pay PITI, cut grass, electricity, etc while the house is sold

If you allow us to work with you with your house problem, and use the Seller Financing laws in Alabama to get someone in your house, make a payment to you for 12 to 24 months, and then the Buyers get a home loan and pay off what you owe, you will net more money in the house sale, and have peace of mind that you found a good fair solution.

Mr and Mrs Seller, we use this "letter of intent"  to discuss what we do and how we do it...

http://form.jotformpro.com/form/42177082338961?

@Lawrence Walker   Great topic! Thanks for getting this started.

Question for @John Jackson and @Brian Gibbons :

On your typical lease option deals, is all, some, or none of the option fee applied to the purchase price?

And thank you both for sharing this stuff

@John Jackson  would probably agree that it can be done both ways, option fee can be part of the purchase price or separate from the purchase price.

Just remember for the property to be sold in this market...

1. The property needs to appraise for the purchase price.

2. The buyer needs to get a loan

So if the property appraises for $100K in the future, it is helpful that the purchase price be at $100K.

I have set the purchase price of an option to be a trigger of.....

The purchase price of this option shall be the the greater of an appraisal from Wells Fargo Bank dated on or before the expiration of said option or $100,000.00, whichever is greater.

You should always have a contract attorney review your docs.

@Paul Danieli We structure it so the option fee is applied to the FHA required down of 3.5% or to the conventional of 5%.

Thanks @John Jackson I also found the answer on your website.

So, all of it for John's deals.  And, I guess for  @Brian Gibbons it varies.

I realize that you can write it up either way - just wondering how each of you handled it.

Obviously, a credit towards the down payment makes it more appealing to a buyer, but it does affect the seller's bottom line.  I mean if I'm keeping the option fee, it is coming out of what would be the proceeds to the seller - similar to an agents commission.  Nothing wrong with that.

Seller Financing discussion with the Seller - 3 columns, discussing their choices.

I talk about selling with an agent, vs renting FRBO and Property manager, and seller financing, which includes lease option assignments, wraps- aitds, sub2 with and without land trusts, installment sales on free and clear houses.

Netting more money is key here.

I have a question on this. I am actually looking for a new place for myself to live, and an investment property. I have seen a few places in Baltimore I really liked (mainly for myself), but they are all with a realtor already. At this point, a loan is not an option for me (short selling my home, so credit is a bit of a mess). But, i can put down a few thousand, and I have a reliable, fairly decent job. Any ideas, or do you just need to look for FSBO properties without RE agents involved ideally?

@Lawrence Walker:  New York is an equitable distribution state, as opposed to a community property state, like California.  The property can be divided equally, or it can also be divided up based on whether one or the other spouse actually owned it prior to marriage; the length of time the marriage endured, what improvements the spouse brought to the property.  There have been occasions when a spouse deliberately refused to cooperate in the sale of a property - spite, whatever - and the judge allowed the proceding to go forward.  (this has to be proven of course). Other times, if a foreclosure was eminent and a forebearance was not, the property could be sold, with a portion of the proceeds held in an escrowed account for a specified period of time until the spouse was located.  If the time (usually a period of years) elapsed and the spouse did not show up, the funds was then turned over to the other spouse without prejudice.  These are case by case issues - not hard and fast rules.  I hope this helps in some way.  Good luck - Gloria D. Wilson 

I have a soft spot for Lease Purchases.  They're one of my favorites because that's how we bought our first home in California - this was before the prices went crazy and you could still get a beautiful home for under $100,000.  We had been looking for neighborhoods to raise our children in.  A contractor had several properties that he had advertised for rent.  My husband's managers were against renting because there were no tax benefits.  So we worked out a lease-to-own arrangement with the contractor. He made it was clear that there was no "option." At the end of the lease period we had to have  everything together - financing, etc., to become the owners of the house.  It was a beautiful split level 4 BR California Ranch, with a guest house in the rear, attached 4-car garage.  The contractor who owned it had more properties than he wanted to handle; had put it on the market, but it hadn't moved after 6 months.  He structured the deal thusly:  Sales Price $95,000- (yes there used to be $95,000 properties in Cali!).   $95,000 at 13% (yes the interest rates were insane back then); He charged us $1000.00 fee to move in; and our monthly rent would be the equivalent of what the mortgage would be over a 30 period of time plus utilities and yard care (huge half acre plot of land). We did not pay the taxes or insurance - since it was still in his name. We paid $450 per month, of which $150 went toward the down payment.  He set the option date for two years from the date we moved in.  He sent receipts and updates for the bills, we covered minor repairs, with his taking responsibilities for major issues (we had a Rotor Rooter issue about 4 months into the deal - but his guys handled it).  

We actually exercised the option just under a year into the option period.  And became the owners of the property - now the issues of warranty, inspection, appraisal did come into play - but regardless of the appraisal, we were obligated to purchase the property at the agreed upon price.  I've found Lease Purchases to be a positive way to go, and a win-win situation. 

However, I'm in Philadelphia, PA and when I first queried realtors about Rent-to-Own, or Lease/Purchase properties, there is a real aversion to them here. Their attitude is that they are for losers, and they won't work with a buyer who is interested in getting a property under RTO. Additionally, they've had many properties on what I call "terminal listings" they've been on the market nearly a year or more, sitting vacant - and no one is telling the seller that this is a powerful selling tool. Sales people are so concerned about losing "commission, they don't understand they benefit twice. And as I'm writing this commentary, It dawns on me that I may want to change my profile to include Lease/purchase (RTO) properties. Thanks so much for all the wonderful information.

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