Is this legit?

11 Replies

Hello.

I have a house listed fsbo and was contacted by some one that sent me this

"Thank you for speaking with me regarding the property located at S. 42nd St. After researching the property, I am interested in making an offer. After seeing what the FMV (Fair Market Value) is, I would not be able to make a cash offer; however I would like to express my sincere interest in purchasing your home.

I am willing to purchase your home under two options.

Lease Option offer – I will pay you $190,000.00. It would be a 12 month contract with a closing to take place at the end or during the term. A down payment would be paid. Also, a monthly payment would be paid at current market value, with a balloon payment at the end or during the term.

Or

Lease purchase (guaranteed purchase) - I will pay you $195,000.00. It would be a 24 month contract, with a closing to take place at the end or during the term. A down payment would be paid. Also, a monthly payment would be paid at current market value, with a balloon payment at the end or during the term.

If you would like to see the terms (down payment, monthly payment, rental credits, closing costs etc.), the contract and FAQ (Frequently Asked Questions), please feel free to call or e-mail.

If you wish to decline this offer please, simply reply back with "I decline.” We thank you for your time and we wish you well in the sale of your property.

Thanks in advance."

My question is is this safe and legit? I'm worried about the length of the contract. Has anyone sold a house with this type of contract. Any advice would be great.

Thanks

The person clearly has no idea what they're talking about. A lease option or lease purchase does not have a balloon, but instead, an expiration of option. A balloon is only used for cases of owner financing, and since a "first right of purchase/refusal" or "option" do not contain a financing component, balloons are not used.

Secondly, a lease purchase is not a guaranteed sale. If they say that, they're lying. A lease option and lease purchase are structurally similar... the difference is in the type of agreement used (a purchase and sales contract is used with a lease purchase, and an option (or first right of purchase/refusal) for a lease option). In either scenario, there are funds lost if the person doesn't perform (in a lease purchase it's earnest money, and in a lease option it's nonrefundable option consideration). There may be other additional language to try to force performance under a purchase and sales contract, but it's useless... if they can't get a loan before the expiration of the option (or the close date on the purchase and sales agreement), then trying to litigate won't make a difference. If you can't get a loan, then you can't get a loan... regardless of whether or not you have language in your purchase agreement allowing you to try to sue for performance. It's a lot of waste of time and energy, in my opinion.

Rental credits are also a big red flag. Rental credits are structured as equitable interest, and therefore requires dodd frank compliance. Rental credits will be viewed similar (or exactly) like an installment sale. 

Is a lease option (or lease purchase) a great way to sell real estate? Yes... but only if done correctly. This is what my entire business revolves around. And I can tell you personally, that there is a very high chance that they want to structure as a sandwich lease option, or an assignment of option. And personally, based on how many incorrect things said in that email, I wouldn't work with them for a second, and allow them to put my property under contract (if I were you)..

Just my $0.02.

If you're gonna sell as a lease option, at least work with an investor that knows what they're talking about. I'm sure there are other lease option investors in your area.

Originally posted by @Wayne Brooks :

This likely would not turn out good for you.  They don't have the money to buy your property, and have no intention of buying it themselves.

 Well, that actually explains my entire business model to a T. So I wouldn't be concerned so much about their inability to come up with the cash themselves, or have the intention of buying it themselves. I didn't have the cash or intentions to buy any of the 80+ lease option contracts I've assigned, but that doesn't make me a bad person to talk to. 

If anything, judge them on the fact that they don't know what they're talking about, not based on anything else.

@Bang Tran   The following will insult half the people on this site.  That kind of crap is what I expect from 99.99% of people that calls themselves a "Wholesaler."

They want to offer you 50% of what the property is worth, tie you into a deal they cannot close, then pray for another buyer to come along.

By the way, I do buy from wholesalers.  I also get 20 letters a week from bad ones.  It is weird to me that they do not seem to notice I control so many vacant houses.

My favorites are when the form letters look handwritten and say stuff like "I live down the street."  If you get four of those in a day on houses miles apart, you question the senders honesty.

That looks like boilerplate the buyers use to make lots of lease option offers.  It's weird how they say that monthly payments would be at market rate......market what?  Rents? Lease options don't have down payments.  They have option fees.  The difference between the lease option and lease purchase is just gibberish.  For sure there is no "guarantee" to purchase.  Just looks like someone who doesn't really know what they are doing.  You can safely ignore their offer.

Originally posted by @Casey Carroll :

.... And I can tell you personally, that there is a very high chance that they want to structure as a sandwich lease option, or an assignment of option. And personally, based on how many incorrect things said in that email, I wouldn't work with them for a second, and allow them to put my property under contract (if I were you)..

It's all about the sandwich lease or assignment of option isn't it?  There would be no other reason an investor would make an offer like that.  

I'm with you in that I wouldn't work with these "buyers" for a second.  But what about your offers makes sellers work with you?  Do they know going in that you will not be the tenant and will be assigning the option?  After more than 15 years still don't understand the value of the lease option.  How many buyers of your 80 deals have been able to exercise the option and cash out the seller?

Originally posted by @Account Closed :
Originally posted by @Casey Carroll:

.... And I can tell you personally, that there is a very high chance that they want to structure as a sandwich lease option, or an assignment of option. And personally, based on how many incorrect things said in that email, I wouldn't work with them for a second, and allow them to put my property under contract (if I were you)..

It's all about the sandwich lease or assignment of option isn't it?  There would be no other reason an investor would make an offer like that.  

I'm with you in that I wouldn't work with these "buyers" for a second.  But what about your offers makes sellers work with you?  Do they know going in that you will not be the tenant and will be assigning the option?  After more than 15 years still don't understand the value of the lease option.  How many buyers of your 80 deals have been able to exercise the option and cash out the seller?

 You're right, it's truly all about the sandwich, or assignment. However, due to the number of errors in that original investors email to the OP, I wouldn't allow that person to put any home I owned under contract, ever. If they don't know what they're talking about on the first impression, then I bet they'll cut corners on the back end, and leave the OP in a massive hole of potential liability (that could have been avoided entirely if the OP just worked with a different experienced investor in the first place).

Honestly, I think people work with me for a couple of reasons: the breadth of my operation (14 different states), references (they can call any of my past sellers if they'd like), I cost the seller nothing, I've done over 80+ deals in 8 different states (I market in 14 states, but only have done deals in 8), I am brutally honest with my sellers about everything (which may cost me deals, but I'd rather do business the right way), I am a moderator at my local REIA (and they can see me listed on the website), and other credible interviews I've done that can be looked up online. But even with all of those selling points, I still spend a tremendous amount of time following up with people religiously... my average seller won't allow me to put a deal under contract until 8-15 follow up touch points after the original phone call (I've had deals that took me a year to lock up after 30+ touch points). Lease option sellers need motivation to want to do this. In a slower sales market, I'm a great option (because people who NEED to sell, but don't have enough selling options at the current market cycle, are going to be willing to do this far more than in hotter markets). But I am fully aware that I'm everyones plan B, or C, and they often don't come my way unless they really need to.

Yes, they know my intent is to assign my option, and I tell them that from the get go. I don't try to hide this fact a single second, and I tackle it head on within my first minute or two talking to someone on the phone. 

As to the buyers exercising, I have no clue. All I can really do up front is eliminate as much risk as possible for the seller (by having the buyer submit a credit report, and by having the buyer talking to a mortgage broker from day one, and helping them with credit repair if they need it). But I can't eliminate all risk, and I tell that to my sellers. Hence, with the cooperative lease option assignment niche, my seller is the one that makes the final decision on who I can assign to, and not me. If the buyer gets a divorce within the next 2 years, or transfers jobs, or becomes unemployed.... I can't stop that, and I don't have a crystal ball... and my sellers know I have no control over those sorts of things. That's why the sellers themselves pick the buyers, not me. It's their decision.

Originally posted by @Casey Carroll :
Originally posted by @K. Marie P.:
Originally posted by @Casey Carroll:

.... And I can tell you personally, that there is a very high chance that they want to structure as a sandwich lease option, or an assignment of option. And personally, based on how many incorrect things said in that email, I wouldn't work with them for a second, and allow them to put my property under contract (if I were you)..

It's all about the sandwich lease or assignment of option isn't it?  There would be no other reason an investor would make an offer like that.  

I'm with you in that I wouldn't work with these "buyers" for a second.  But what about your offers makes sellers work with you?  Do they know going in that you will not be the tenant and will be assigning the option?  After more than 15 years still don't understand the value of the lease option.  How many buyers of your 80 deals have been able to exercise the option and cash out the seller?

 You're right, it's truly all about the sandwich, or assignment. However, due to the number of errors in that original investors email to the OP, I wouldn't allow that person to put any home I owned under contract, ever. If they don't know what they're talking about on the first impression, then I bet they'll cut corners on the back end, and leave the OP in a massive hole of potential liability (that could have been avoided entirely if the OP just worked with a different experienced investor in the first place).

Honestly, I think people work with me for a couple of reasons: the breadth of my operation (14 different states), references (they can call any of my past sellers if they'd like), I cost the seller nothing, I've done over 80+ deals in 8 different states (I market in 14 states, but only have done deals in 8), I am brutally honest with my sellers about everything (which may cost me deals, but I'd rather do business the right way), I am a moderator at my local REIA (and they can see me listed on the website), and other credible interviews I've done that can be looked up online. But even with all of those selling points, I still spend a tremendous amount of time following up with people religiously... my average seller won't allow me to put a deal under contract until 8-15 follow up touch points after the original phone call (I've had deals that took me a year to lock up after 30+ touch points). Lease option sellers need motivation to want to do this. In a slower sales market, I'm a great option (because people who NEED to sell, but don't have enough selling options at the current market cycle, are going to be willing to do this far more than in hotter markets). But I am fully aware that I'm everyones plan B, or C, and they often don't come my way unless they really need to.

Yes, they know my intent is to assign my option, and I tell them that from the get go. I don't try to hide this fact a single second, and I tackle it head on within my first minute or two talking to someone on the phone. 

As to the buyers exercising, I have no clue. All I can really do up front is eliminate as much risk as possible for the seller (by having the buyer submit a credit report, and by having the buyer talking to a mortgage broker from day one, and helping them with credit repair if they need it). But I can't eliminate all risk, and I tell that to my sellers. Hence, with the cooperative lease option assignment niche, my seller is the one that makes the final decision on who I can assign to, and not me. If the buyer gets a divorce within the next 2 years, or transfers jobs, or becomes unemployed.... I can't stop that, and I don't have a crystal ball... and my sellers know I have no control over those sorts of things. That's why the sellers themselves pick the buyers, not me. It's their decision.

Casey:  thanks for the additional info on your business model.  You say you have no idea how many buyers exercise the option and pay the seller off.  If you have no idea, then you're no longer in the middle, correct?  And that the sellers approve of the assignment.  So it's not really a sandwich lease, but rather an assignment of your option and lease agreement to the end buyer/lessee/optionee, correct?

Very interesting.  I have no doubt you are making lots of repeat contact with these sellers. My seller financing and sub2 purchases all have taken lots of repeat contact. Of course, their property continues to go unsold during that period, so motivation builds. Good stuff.  Thanks for sharing!

Correct, once I assign my option to the tenant buyer, I'm totally out of the equation. My business model is dedicated to a one time assignment fee only, and they range between $2,500 to $10,000 on most deals (if you stack a few of those a month, it's a decent living).  I personally would never ever do a sandwich lease option, because there have been a few times where the seller came back to me and allowed me to put the home under contract to assign to someone, because the buyer I assigned to ended up getting evicted/divorced/etc. I hate it when that happens (because I truly want to help people, not just take money from a buyer and find out they never buy), but due to my great relationship with the seller, I've oftentimes had the seller come back after the original person I assigned to didn't work out. If I did a sandwich, I'm in a massive boat of liability.... I'd rather buy via sub2, land contract, etc., if I'm going to sell as a lease option for a home I own myself. 

I don't really focus on seller financing and/or sub2 at the moment (unless I'm assigning a seller financed contract). I'm waiting on the market to slow down a little before I start buying via creative financing for myself. The market in my area is still white hot at the moment.

To be honest, I don't have that much repeat contact with a seller or buyer after the fact, but I am always available to help or answer questions too. I've had lenders call me, asking for copies of bank statements from when I received an assignment fee from a buyer a year or two later (to make sure they did pay me what they said they paid me), and I've gotten calls from buyers or sellers needing clarification on something (but I usually also recommend that they talk to an attorney as well, since I'm not an attorney, and can't give legal advice). Besides that, that's just about it.