All Forum Posts by: Tim Ivory

Jay, I anticipate the LO sellers to need to sell but not have any equity in the property to list with an agent. I have a marketing system in place that can find a qualified tenant faster than they could themselves. If I can find a tenant buyer even one month faster, I already save then 1-1.5K. I'm not getting rich, and they are not getting a big down payment, but it solves their problem by getting someone else to pay the mortgage and maintain the property for them.

If anyone happens to know where I can find everything I need to know about license laws in TN, I'd love to know. It's confusing on the site, will probably need to wait until tomorrow to ask someone where to locate it. This ambiguity is concerning, so I'll just read for myself exactly what the license laws say on this matter. Hopefully, that should clear things up and I needn't be so needy or reliant on an attorney for answers (if I could find one familiar with LOA).

You have my apologies, Chris. Now I get what your saying. Very good point, indeed. 

In the rental agreement contract I have that the seller and new tenant buyer sign, this future projected inflation is actually built into the contract. So, a 100K property can be bought at year 1 for 100K, year 2 at 105K, year 3 at 110K. Of course, this may or may not be inline with the market value at the time, in which case it would absolutely be in the tenant buyers best monetary interest not to buy. It also works on the flipside though, what if it appreciates more than the contract states, then the owner is locked in and it would be a good idea to buy.

Whether the tenant buyer actually exercises the contract isn't really my concern, however. If they do, great for the seller. I'm happy for them. If not, and the option expires, I'd be happy to find them another tenant buyer. The statistics are pretty clear. They most likely won't be buying before the options expires.

@Steve Vaughan Thanks. It's the first time I'm hearing the issue about needing a license since I'm leasing it out. I wasn't aware I was "leasing it out". So, you are saying, assigning my right to lease option a property counts as me leasing it out and this is what some agents or property managers do? Do they assign lease options the way we are doing it here? When they do, are they acting as a principle, like we are doing?

Please, if you can expand on what you said in any way or provide an external resource, I'd be immensely grateful.

@Christopher Phillips We are talking about lease options, not regular options, which are interesting in their own right. Appreciation has little to do with the strategy, unless counting artificial appreciation by finding a tenant buyer willing to pay more than market value due to the favorable terms we are offering. In theory, one can lease option a property that is underwater by 100K, so it would be 100K over MKV. The tenant probably won't buy, but as long as the rent is market value, they are fine with it.

One of the reasons why I like assigning LO as a strategy is because I can get in and out of the deal with minimum risk. At this early stage (not even begun yet) I want to avoid the pressure/anxiety of having to worry about making any type of rental payments if my LO tenant buyer can't pay. This is the same reason I would probably pass on a sub 2 deal as well, atleast until I have a sustainable source of income I can rely on for the unexpected. I'd probably just get a potential subject to deal under contract as a Land Contract then assign this to another investor. Anywho, I digress on subject to's. 

Not to mention, not being sure I have the wherewithal to pull of SLO as already being mentioned. It's not so much the understanding of the concepts, but my ability to communicate what I'm doing to the right or wrong people could be an issue. Could cause misunderstandings and get sued or something, even though in principle, it's legal. Until more experience, and I have the "words in my mouth" will skip the SLO.

Thanks guys,  learning lots here, Every viewpoint is helpful.

Good Thought Jay. If I had to choose, a leasing agent would be the way I'd go :)

There's only one way to know how viable this strategy will be in my area, and that is to do it. As far as no money down starter strategies, this one is solid, at least in theory.  For instance,  it'll be easier to LO than convince a seller to sell their property for for 60% MKV then wholesale it. I already have months of time setting up a website, multiple autoresponder mail lists, and a few other ways to automate things, so I'm already invested in this strategy and won't be entertaining any other strategies until I see for myself if this one pans.

With LO, it's all about marketing, in short.

@Steve Vaughan Indeed, you bring up another point. No one is really closing these deals, they are options and leases. A closer may or may not happen in the future. This issue is quite ambiguous, especially finding people with experience. I've talked to attorneys who said I need a brokers license, then 10 minutes into the conversation I find myself having to explain what a lease option is, then explain how realtors don't get involved in rentals (correct me if I'm wrong). So it's hard to rely on attorneys advice on the matter when they don't understand what I'm trying to do.

I need information, correct information. And that is apparently hard to come by. Presumably, I need to find an attorney with experience in this exact matters within my state. My next step is inquire at local reai for attorney referrals. I'm also waiting on an email directly from the TN Realtors Commission. They should let me know one way or the other. 

I've already sent that email ;)

There are far grander and better ways to make money in real estate for someone like you, as far as I can see, with as much experience and ability in real estate. This is a pulling oneself up from ones bootstraps approach to earning a bit of money without using capital, loans, or anyone else's money. I want to make money without money, then go onto fix and flips, buy and holds, new construction once I have a sustainable business model that generates capital for some more serious real estate investing.

I need your help with something and I’m having a hard time finding help at the local level. Some people say it’s legal, some say it’s not, some have ideas on how to make it legal, which I’ll love to here and will address later. I want to make sure my understanding of this potential legal issue is accurate and that I can collect as many viewpoints as possible to weigh what my next step may be, which might as well be just getting a brokers license. I was hoping to avoid this since I just want to get my feet wet without taking such a formal commitment, not to mention more time, energy, and expenses.

Getting a license seems to be the surest answer to avoid broker license issues. However, having anticipated this scenario and doing research studying contracts, I would need to have all of my contracts say something along the lines of “Even though I’m a licensed agent, I’m acting on my own behalf as a principle in the transaction and am not representing the buyer in any way”. Okay. Great. But why am I going to go through all the trouble of getting licensed when all the contracts I’ll be using state I’m not asking as a realtor but towards my own personal interest as a principle in the transaction. That line essential negates being a broker to begin with and then relies on the soundness of simply being a principle in the transaction, in which case, why even get a license to begin with, and simply rely on just being a principle in the transaction?

Basic question is this: Is it permissible for a person to market and assign a lease option contract which that person holds as a principle to buy a house without a brokers license?

License law states one does not need a license as long as one is a principle, so you would think the answer is clear cut, but is not. You’ll get different answers depending on who you ask.

What I’m trying to do. I want to assign lease options to a tenant buyer from a seller on a contract that is assignable and doesn't tie up the property (they can cancel anytime or find there own buyer). I do not have a brokers license at the moment.

Since I do not have a broker's license, I need to be a principle in the transaction, and the lease option memo agreement they sign makes me a principle. Having the right to buy a property makes me a principle in the transaction. This gives me the right to sell or market the property, the same way they have the right to sell the property FSBO. If this weren't possible, no one could sell their property without being on the deed free and clear. It is also assignable and says I have the right to charge a fee to assign the property.

More details. I’m only selling my option, my right to buy, I’m not closing the deal and my signature is not on the resident documents only the addendum. I should be in and out of the deal and won’t have to worry about responsibility or liability because I didn’t close the deal and my signature is not on the rental agreements and documents.

Points of consideration. Being a principle is enough. You don’t have to be on the deed because the Land Contract or Contract for Deed owners are also considered to be owners. The license law actually says that you become a principal when you sign the purchase agreement. You’re a principal in the transaction. What that means is that a purchase agreement or an option, which is what we’re doing here, makes you a principal in the transaction.

Is this legal or does it sound like I’m trying hard to find a way around the law?

Ways to stay legal

1. Get an attorney to find a tenant buyer after getting your lease option memo signed with the seller.
2. Close on lease option yourself, then assign it. (Normally, my signature wouldn’t be on 12 page resident documents/option/acknowledgment documents, only the tenants and sellers)

About the first way. If it turns out I need a license, I’ll still like to try putting some deals together but with the help of a licensed agent this time, ensuring there is no license law issues. I've read that it's a good idea to stay in control of finding the lease option sellers, so it might be a good idea just to get an agent to find a tenant buyer.

On the logistics of this arrangement, what role do they play? What if I already have a tenant buyer and just need an agent to close, but close what? It's all done at the kitchen table, right? Or, is the point not to look for a tenant buyer, but leave that part up entirely to the agent?

I’d love to hear your guys thoughts and ideas on this. Particularly, your take if its legal or if I need a license after all, despite other investors doing it everywhere apparently (this is so weird how ambiguous this is). Also, if there or any ways to ensure its legal.

Argument for needing a license.

1. Using being a principle as an excuse to bypass license laws?
2. Can you demonstrate intent and ability to close? However, we are dealing with lease options, so what would this mean? It’s an option to buy the house, not an obligation.
3. Are you hindering or aiding the seller? This is a good thought to ask. In my case, the contract is not binding. It doesn’t tie the property up. They can get out of it anytime. I’m not recording the option. They can find there own tenant/seller, while I’m marketing. They wouldn’t have equity, so a realtor couldn’t help them anyways. I think the argument can be made I’m helping this people more than anything.
4. The issue or marketing a property one does not own. Even having it written in contract, seller gives me the right to market the property, would not negate contract law which opposes this. I would need to market it carefully, marketing my contract only.

This post is long. If I don’t get any replies, I’ll try condensing it.

If I need to, I’ll pay for help on this matter.

From my understanding, I would be a principle in the transaction after they sign the lease option memo, just as the seller is a principle. We would both be principles at that point. The seller is not the owner until the house is paid off. Whomever issued the mortgage is the real owner. That is why being a principle is a legal thing. It allows other parties beside the owner to sell, or market the property. Otherwise, anyone with a mortgage cannot sell a property. Makes sense?

Please correct me if I'm wrong. I'm talking to an attorney, and a mentor about this topic right now. I have the phone number of a commercial broker who was on the commission already in my smartphone that I plan to call as well after hearing back from a few people, though, at the moment, it seems pretty straightforward. Needing a license seems to be the concern most people have when they are not familiar with assigning lease options, and rightfully so, but not a major concern.