Wholesaling 3 Option LOI Question

5 Replies

Does anyone know a good way to structure a 3 Option Letter of Intent when wholesaling? Obviously my first option would be an all cash offer, but what about the other two? Lease option or a subject to agreement? How does this work when you go to assign the contract? Any help is greatly appreciated!

Letter of intent basically goes over what you're offering

I like to keep my three offers simple and not ambiguous

As an example let's talk about $100,000 Comped house, Low equity, say 95,001st mortgage

There's no cash offer there, 70% of ARV is 70,000

No seller in their right mind would discount the property that much

So you have a sub to and a lease option assignment

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From Brian Gibbons, xxx-xxx-xxxx

Dear Mr. seller,

This is a letter of intent to discuss your property at the address 123 Main St., city state zip

As we talked about in person, there's not a lot of equity in your property, and it will cost you approximately $10,000 to sell with an agent

I can offer you two options, and please tell me which one you prefer

Option one is where I would take over your payments, close in seven days, and whatever your principal,  interest,  taxes and insurance are, they would be paid on time for a period up to three years. Also maintenance would be paid. A Quick Claim Deed will be held in escrow to protect your interests in case there's any default of payments to you.

Option two would be where I would enter into a lease and option to purchase, find a tenant buyer to pay your market rent for a period of time, usually within 12 to 18 months, but expect up to 36 months for the tenant buyer to completely pay off your mortgage.  The tenant buyer will pay a fee to me. The only expense if you would be a property inspection report to prove to the buyer for the property is in good condition. Upon getting the mortgage, buyer will pay all closing costs. This will save you the seller approximately $10,000 in sales commissions and closing costs

Please sign at the bottom which option you're interested in, and text me at XXX – XXX – XXXX

You can take a photo of this letter of intent signed, and text it to the number above.

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Seller name

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Seller name

---- option 1

---- option 2

@briangibbons  Oh okay that clears up a lot, I forgot to consider sellers with little to no equity. Now if you get them to agree to a sub to or a lease option, where does the profit for a wholesaler come in? Would you then just assign the contract with the same deal, but higher rate to an end buyer/investor?

@Hayden Harrington

Okay let's get something clear,

"subject to" has a due on sale clause 

and if there's no equity in the deal no investor is going to want to buy it for cash 

Sub 2 is interim financing

you might want to exit with a lease to own and get that tenant buyer financed, you earn 3 to 5 per cent as an option fee

With a low  equity deal on a lease option assignment, there's no such urgency, you could do a long term lease option. Just remember to write one year leases and one year options with possible extensions.

I hope that helps to understand low equity deals

@briangibbons 

Regarding the letter of intent, is there any problem with stating that you intend to find tenant buyers to pay the sellers market rent, if you don't in fact have an RE license? I am planning to do something similar in CA. 

I understand that you should have an agent represent you in finding the TB, but is there any problem with making that representation to the seller without the agent present?  

Or is it ok if you do it in an LLC, with the investor as a principal and the agent under contract to represent the LLC?