2-year "worry-free" Lease Back

8 Replies

Hello forum,

My company recently recieved a contract with a devoloper of a 4 star Condo-Hotel projectin Orlando,FL. The buyer incentives include a 2-year "Master Lease" (lease-back) program, that guarentee's 2 years of mortage payments (up to 10% total purchase price per year),2 years HOA,2 years Property taxes, and covers closing costs(up to 1% of purchace price)and a Fly and Buy program, that covers travleing, board, and some food costs when veiwing the property.

My actual questions were:

Have any Agents/Brokers have had success with a program similar or the same?

What are possible ways to market these great incentives to buyers?

and

What are good ways to expose people to the benifits of this program to investors?

I appreciate your input, and am looking forward to any insight!

Thanks,
Lynel Charfauros
RC Legacy INC.
San Diego

I've looked at a bunch of these types of deals, and they have all been bad deals. The guaranteed leaseback period sounds good, but its only short term. It often understates expenses, making it sound like there is positive cash flow when there really is not.

Then, after the guaranteed period ends, you have to deal with the actual rent collections. Maybe you can find a tenant, maybe not. Maybe the rent is up to what they said, maybe not. Maybe you get a great tenant, great rent and no problems, and it turns into a screaming deal. Maybe there area dozens of investors chasing a few tenants, and you either get low rent or no rent. But, the syndicator or builder is done. They've sold the properties and the investors are stuck holding the bag.

Most of these are, IMHO, barely above scams. The builder or developer is trying to sell properties, and has to offer these sweeteners to get takers. I believe most of these are aimed at newbie investors who don't understand the true expenses. The developers understated expenses make it look like a good deal, and by the time the investor figures out the reality, the developer is long gone.

As luck would have it, todays' Rocky Mountain News has a big spread on a guy who was doing just this type of deal. He bought apartment building in the Denver area, condo converted them, and sold them to investors. He guaranteed the rent payments for some period. Thanks to some shady appraising, and a few forged docs (pictures in the article), he sold these properties to investors at a significant profit. One appraiser has already lost their license and another is being investigated. Somehow, the rents never made it to the investors, and many of the properties have been foreclosed. The tenants have either left, or are living in apartments with no utilities.

Be careful.

I do appreciate the insight. Thanks for the article, it provided me some insight on the potential downfalls.I thank you and will watch out for any potential situations like this, which i bet are plentiful. I am glad these developers are very trusted and since its a CondoHotel there is on-sight property managment at all times, and no sign of the Resort going under. I, however, don't understand completly how to market this program and if anyone with any input could share some insight i would love any help!

Hey Jon; great article in this AM's paper. IMO that should be required reading for any newbie who says; "I just heard about a 'can't miss' deal".

I guaranty that'll paint all of us legit guys with a bad brush for a week or two.

all cash

Tell me about it! The last thing anyone needs is a deal to go that sour. I mean its a bad market, and you gamble with depreciation, but never that. It makes one think before making a hasty offer on a "too good to be true' offer.

I, however, don't understand completly how to market this program and if anyone with any input could share some insight i would love any help!

If these properties have a negative cash flow and are being sold at retail prices, most serious investors are not going to touch them (regardless of the incentives). Therefore, you will have to sell them to ignorant newbies (newbies that don't understand the business). There is a never ending supply of ignorant newbies who don't do their homework; pay too much for rental property; and then fail in a big way. IF, and that's a big if, they are serious deals with positive cash flow (using real world expenses) and being offered at a significant discount to the current market value, selling them will be VERY EASY. Go to the REIAs in your area and talk to the serious investors. These serious investors are always looking for a good deal and will snap them up in a hurry.

Good Luck,

Mike

thanks! I signed up yesterday for the local REI club's meetings. There are so many of these around my area, i am thinking of doing a 3 city meeting rotation, so i can get as much information on what investors are looking for. I don't truly know what parts of deals spark interest, so i bet that would share some insight on how the investor's brain works. Has anyone tried these "Web seminars" i have been seen floating around. I am sure some are beneficial, but has anyone had first hand exp. with them. I just wanted to know how useful they are, or can be.

Thank again,
Lynel Charfauros
RC Legacy INC.
San Diego

Remember, there is a reason that they are offering the 2 year lease back and other incentives, and as others have said, these are not deals 99% of the time.

I have seen so many RE companies offering this lease back crap, it is one of the many "scams" out there getting new folks.

I would avoid them like the plague.