Structure a Deal

10 Replies

I have a question for those experienced LO people. I have an opportunity to do a LO with someone that asked me to sell their home ( I am a licensed Fl. realtor). I want to give her another option- Lease Option.  She is not desperate- but the home is vacant and she lives out of town. She wants to sell it by Jan. when she leaves the state. It is appraised at $143,000 and she owes $119,000. Bought it for $160,000.  Mortgage is $1020 .00  a month including escrow. Average rental market is $1100.   I am not sure if I want to sandwich or just assign and get out  of the picture since I am nervous this being my first possible deal. 

I would appreciate all suggestions on how to structure or what to offer her as a win-win situation.

Shelley

@Shelley Alterman

I'm talking here with 30 years experience

You're in Florida and you're an agent and that's awesome

If you care about protecting the seller I would do a lease purchase versus a lease option and get 5% down and take 3% as a fee

I don't know what Florida customary earnest money deposits are, in California earnest money is 3%

My advice to you: 

Create a lease purchase agreement, Florida State lease, and a sale and purchase agreement.

To make your seller happy I would take the payment from the tenant buyer and send it directly to the bank if she's out of town, I use www.notecollection.com

To improve the chances of the buyer getting a mortgage I would mandate that they use a credit improvement service like www.upgrademycredit.com

If you leave the buyer to their own devices that won't work on their credit and debt to earnings ratio

Credit is very tight right now and you need to find the right tenant buyer has a good chance of getting the mortgage. I run all my time buyers through a RMLO or registered mortgage loan originator; this is not necessary because it's not an executury contract, either this will happen or that will happen, like an option; 

This is more like a delayed sale and purchase agreement where they lease for a while and then have to buy it or they are out of their earnest money.

I think if you care about the seller you never do a lease option because there's no pressure for the buyer to move along

Another option is a lease and a ROFR or right of first refusal. Search here on BP 

Brian Gibbons right of first refusal

Best of luck

What are your thoughts on "rent credit". I  have heard 50% to get TB attention in ads but then someone mentioned to me "Frank Dobb" says you can not do that.... With a real estate license I do not want to do anything not legal/ethical

Shelley

continuing on the "rent credit" with Frank Dobb thoughts.

Is there a legal difference in using rent credit in an assignment or a sandwich for me?

I don't want to use rent credit if there is going to be a problem but  I am thinking TB are going to expect it.

Originally posted by @Brian Gibbons :

@Shelley Alterman

I think if you care about the seller you never do a lease option because there's no pressure for the buyer to move along

Do you have something outlining the differences between L/O & L/P?

It would seem that a non-refundable option consideration would compel a buyer, particularly if it's thousands.

But I see what you mean about having a purchase contract with timelines etc, compelling the buyer to move forward.

As always, great insights, Brian.

@Brian Gibbons I understand that a Lease Purchase would protect the seller most, because the tenant/buyer has an obligation to buy versus an option to buy in a Lease Option.  But, as from time to time it does happen in Lease Options, what if in a Lease Purchase at the expiration date the tenant still can't qualify for a loan to buy the house.  Other than obviously re-negotiating an extension with the seller, what are the other possibilities in this situation?

Presume, tenant buyer would have to move out at end of lease or owner would have to evict them if necessary (which might make it more difficult if TB has a Lease Purchase, just a presumption).  

I can also see how a Lease Purchase would be a good thing to set the seller up with if I am jus assigning the deal.  But, in a sandwich lease this now puts more pressure and risk on me... unless I did a LO with seller and a LP with my tenant/buyer (then I would be OK and even more protected as my buyer has an obligation to buy).  Right?

@Brian Gibbons

Good point. Although we do have investor seller's who don't mind failed options at all. At the option maturity they ask for a new consideration or do it again with someone else, increasing their ROI on a would be rental. Of course, if the optionee does perform, that's great too. Before I had to liquidate most of my holdings because of the crash, we never did a straight lease (always L/O's) for this very reason. Two-five year holds also had tax advantages. But this strategy required easy financing which is hard to come by these days.

In your experience, do you see any difference between the two instruments if the deal goes south?  (Read: eviction).  Do judges view the purchase contract as the same "equitable interest" that wholesalers use to justify their activities?

Thank you, sir.

@William Hochstedler - I agree with the premise of your question, that being that there's probably not a substantial difference between a failed L/O or L/P. Both (to my understanding) are written with the same intent. Perhaps the L/P plants the seed of responsibility in the tenant/buyer's mind, but not sure it goes much beyond that. At the end of the day, larger deposits are the best security in the case of a failure, and a greater motivation for t/b's to execute. However, a word of caution - larger deposits are also a larger motivation for t/b's to call the lawyer. So, make sure your paperwork is properly in order...

In the real world there is no difference between a lease option and a lease purchase.  I understand the pointy headed intellectuals will make the argument that a lease purchase compels the tenant to buy.  But what happens when that tenant is getting a divorce?  Or loses his job?  Or has a medical emergency?  That house ain't gettin' purchased.  I don't care what the agreement you use stated.  Sure, a lawsuit will follow with the only results being an attorney with a higher net worth and a judgement against the tenant that is worthless.