Calling renters w/ lease option proposal

[William MacBride]

Hi there,
I was just listening to an introductory recording (one of those "basic info to get you interested in coming to my seminar" type talks) by a real estate guru named Joe Crump.
One quick way he recommends to get cash flow going that interested me is the following method, but I need some clarification on a few points with it:
1.You call up the "apt for rent" ads in the paper.
2. ask the renter if he or she would like to sell rather than continuing to rent out the property.
3. If so use what he calls a "lease option memo." It gives the renter/seller a lot of outs and makes the deal very risk free. However, it also gives you the right to transfer the lease option to somebody else and collect a lease option fee. You're considered to have "principal interest" so you're not collecting a broker's fee, which would be illegal.
4. Get a whole bunch of buyers lined up by advertising in roughly this format: "rent to buy, anyone qualifies, call 123-4567"
5. sign over the lease option to interested end buyer and collect your fee.

He claims you can do this without ever meeting with anyone in person or even seeing the property.

Now a few questions:
A. Who pays the lease option fee? I'm really new to this - seems basic, but I need to know what he means by a "lease option fee." He means what, the seller pays you to find an end buyer? Or is it that you mark up the cost of the house to turn a profit and that's considered your fee?
B. What provisions exactly would be in this "lease option memo"? This is similar to the question I was asking about the "flex option agreement" I was asking in the other section. is this type of agreement 100% legal and what would you include in the agreement? I guess it's basically that if you don't come up with an end buyer after a period of time both of you can walk away, etc.
C. Would you be paying rents to the renter in the meantime while finding an end buyer?
D. Are there any variations on this technique anybody'd like to mention?
E. Any other relevant info anyone has about this kind of deal.

Thanks,
Will

[Brian Gibbons]

Let me see if I have this:

The owner LOs (lease options) his own property from the master tenant buyer (me the investor) how does that work? -- Then I assign the owner's lease option to a final TB...? I am lost :) --
Does original owner deed the property to me, then I L/O it back to him, and then find the final TB so the original owner can assign his L/O over to the final tb. . . : | --

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Hi Matty:

I've coached 1 on 1 over 120 people in Cooperatives, so let's see if this explanation makes any sense:

You are in CALIF? Where?
What is Market Rent for a 3 B 1 B Lunch Pail Joe Home?
That is what I would look for.
Say Market Rent = 1400.

What is Market Value? Say $350,000.

So Rent to Value =
1400 x 12 = 16,800
Value = $350,000
Without appreciation, yield = 16800 div by 350,000 = $4.8%,
CD rate of return.

Another Market: Alabama
What about $1000 per month rent, 4B house, $70,000?
12,000 div by 70,000 .17 or 17% yield.

Calif does not work well on yields. Maybe Apartment Buildings.

======================

Coop Assignment is simply this.
You Find Sam Seller, He HAS to move and wants a better deal than paying a property manager.
You, Ivan Investor are the MASTER TENANT BUYER.
You LO from Seller.

Your job is to WORK WITH, not AGAINST the Seller to help him place a RTO Solution on his house.
You find a TBer with 3% down cash or cash + note.
You inflate the home sales price by 3%.
Seller is still getting all his money (similar to Seller creating a note, and selling a note at a discount.

You are principal in the transaction, first as a lessee-optionee, than as an assignor.

RECAP:
You LO w seller.
You cooperate with seller, not adversarial.
You find the TBer, you walk through the house, preferably vacant.
Avoid the Seller at all cost.
Close with an attorney, preferably at the attorney's office w the TBer.
Then YOU ARE OUT OF THE DEAL.
Negatives: No back end profit
Positives: No guarantees of paid rent or minor maintenance.
And 3% beats 1/4 of 6% (what realtors get.)

Hard part is not the houses.
Hard part is TBers THAT HAVE 3% cash. Your Fee.

If you negotiate it right, it is the easiest deal there is in REI (in a declining market).

It takes experience to do them well, as no book can teach you, but you do 10 deals with a mentor, and you learn fast.

All the best,

Brian