All Forum Posts by: Jennifer B.

I am sensing my "advice" is being misunderstood. There are MANY different ways you can structure a lease option/purchase/rent to own. My biggest issue with this structure is it is often very one sided, of course if I am going to allow someone to lease purchase my home I am going to protect myself and have everything in the contract follow those terms ie. waiving their financing. At the point of move in, the tenants deposit is non-refundable anyway, the reason I have them waive financing is so they completely understand what they are getting in to and so if we had to go in front of a judge it would be clear that there were NO Contingencies (or they were previously waived). I have the tenant buyers perform their own home inspection (I won't allow them to waive that) and also have them get set up with a reputable lender with a PLAN and a reasonable plan at that. I also meet with them and their family and make sure we are all on the same page.

I think if you are going to give someone a fair chance and they take it, you also need to provide them with the tools to be successful.

So if my previous post sounded contradictory (which when I re-read it, it kinda did) I hope that I have cleared that up.

Chris, if you do go into a lease purchase please make sure you have your attorney review everything so that you are complying with Washington state laws. By the way... you can put anything you want in a contract as long as its legal and is agreed upon by all parties.

Hi Chris,

You can structure a rent to own deal however your want. I've done several, and I do lease purchases (not lease options) - basically the buyer has to put a significant down payment or deposit (do NOT call it Earnest Money) down and then monthly payments can be towards the rent only or you can have a portion go towards the down too.

You want to make sure that you have two separate agreement - a purchase and sale and a rental agreement. If its all together in the same agreement and there are issues at the end its going to be more difficult.

There are many potential upsides to doing a lease purchase. There are also many downsides. You want to have provisions which include if the house does not appraise (or you can have the buyer waive their financing contingency like I do) and then you also need to outline who is responsible for repairs. I would suggest some kind of cap for repairs, like maybe any repairs over $500 you will take care of ect ect.

Another downside is when the tenant buyer cannot perform on the contract. This leaves them upset and resentful, even if you fully explain to them how this works.

Also make sure that you are not setting up a renter for failure. If they recently lost a home to foreclosure and you do a lease purchase for one year they are definitely not going to be able to buy your home at the end of the term.

If you own the home free and clear, it may be a better idea to offer seller financing and actually close on the home so that they
are the owner. I've had more success doing that then lease purchases. You give them a specific time frame to refinance or you can sell the note.

Whichever way you go, always make sure you are following the rules and regulations and doing deals ethically.

Hi All!

So I would love to have a very clear, line item answer for my costs.. but it varies from municipality to amount of dirt I have to move and/or where the nearest utilities are. Here is the last deal I did (which wasn't necessarily my best, but it was a rural area and winter).

Lot acquisition price: $66,961
Permits/mitigation fees: $6000
Total building costs: $181,400
-includes all materials, labor, septic tank & drainfield, utilities, staging, landscaping ect

Total : $254,361
Net on closing HUD after commissions ect: $302,835
Total Profit: $48,474

The house was 2677 sf w/3 car garage so with permits and total building costs the square footage price was $70.

Hi Raymond,

The $50 - $65/ft price is for materials only. Permit costs vary from city to county so that is what I use in the beginning.

I target areas where there is a lack of inventory, and the permitting process and permitting costs are very low. I also see what is selling for the highest dollar and does not exist.. ie a 4 bedroom home w/potential MIL vs 3 bedroom. Its almost like working backwards and creating your own supply/demand.

For the three homes I am working on now, the per house permit costs are less than $4000 each.

I also like to build in areas north of seattle, like Everett. Everett has a strong naval base and is only a half hour from Seattle so its much more affordable for buyers. In Seattle, we have more townhouses and modern style homes which can be a little more expensive to build.

Its a pretty easy process when I find land to build, I just take one of the plans that I've built before, plug in the land & permitting costs into my calculator and see where the LTV and profit ends up.

The time spent analyzing a new construction deal vs. a flip deal is so much easier and less time consuming. Its basically just pulling comps and plugging in a house plan. Can't same the same for rehabbing since every house needs something completely different.

Thank you Will for brining up another point... I completely agree that the lack of inventory we are experiencing now does not mean the inventory is going to remain low. The banks turned on the REO faucet and let it run full blast last year and then have shut it off for a few months. This does not mean all the REOs got soaked up, they are still holding on to a staggering amount of homes that have not hit the market. However, they have rented many back to previous owners too.

No one knows how much shadow inventory is really out there, and it depends on the area you are in as well. What I have heard is that the asset managers are not going to be releasing the inventory at the rate they had previously, in hopes to allow just enough inventory to satisfy the demand. The only way we will know we are out is once we continue to see homes appreciate at a stable rate, often times we will not realize it for months.

This discussion is relevent to new construction vs rehabbing OR investing in general because no matter what you do, I suggest you GET IN and GET OUT as quickly as possible.

If you can build in 65 days and turn a great profit then do it... OR buy a rehab and fix it up, but make sure you sell as quickly as possible.

If you continue to get out of projects quickly not only does your ROI go up, but you can stay on top of prices better if there is another drop.

Same issue in Seattle! I'm doing and/or working on doing a lot of what Monica mentioned.

The only thing I'm doing that has not been mentioned is talking to local banks and asking if they have any inventory or properties they need to sell. I build homes as an investment strategy as well so I have received more land deals than houses, but it may be an option worth trying.

You can also look up which local banks are operating under a cease and desist order from the FDIC, those ones are going to be the most motivated to get negative assets off their books.

Make sure you find out which branch is the main branch, and ask to speak to a special assets manager. If you can get an appointment, just ask if they have a list of properties currently owned by the bank that are not on the market yet, or if they are interested in selling any notes. It may take several conversations and/or closed doors before you get any information, but it has definitely paid off for me and I've had access to many properties that were not on the market.

Haha will do!

Actually... the funny thing is I typically don't use any of my own money. On this one I have a "silent" investor partner who is putting out 100% of the down payment cash and I manage the project. I do have to personally guarantee the private money, but we split the profits and it works great for me and equally great for the investor.

I have lots of tips, I do fear they may not be true in all states, but here are a few things that will follow the foreclosure in Washington:

1. Municipal liens: Basically anything with a City of... can follow the foreclosure. Sometimes they do not show up on the initial title search though. If a property is within city limits and has city utilities you most likely will inherit a water/sewer/garbage bill. FYI... cities do not negotiate.

2. HOA Liens: Usually only 6 months of back dues can follow, but I've had HOA's argue for more. If its costing you a sale and clouding title its usually cheaper just to pay it off.

3. Special Assessments/ULIDS: These can be a pain, they are hard to detect and can be thousands of dollars.

4. IRS Liens: Be very careful with this one... also, understand that you have to have a special login to see if someone has an IRS lien, typically these do NOT show up on your county records search. Only a title company can search for these. Its not the end of the world if you buy a property with one... even if its hundreds of thousands of dollars. The IRS can only cloud title for 120 days. You can also negotiate with them, explain the situation and they usually release the lien.

5. Mechanics liens: These are pretty rare because they have to be filed within 90 days of the last work that was done to the property, and usually someone who is losing their house is not going to have someone working on it.

6. UCC Filings: This can be a variety of things, I've seen some follow the foreclosure, and some fall off.

Now if I haven't totally freaked you out... there are a few other tips to minimizing your risks:

1. Its imperative that you work with a title company or some sort of title expert.

2. Make sure you drive the property and check for clues. If it has red tag notices on the front door and water pooling around the basement you may not want to buy this property for fear of mold or a water break.

3. Know your state laws for tenants and owner occupants. In washington an owner occupant has 20 days to vacate and tenants have 60. You can offer cash with keys to get them out quicker.

4. Make sure when flipping that you work with a lender/realtor who understands the FHA flipping rule (basically requires owning the property for 90 days prior to selling it to an FHA buyer). There are easy ways to sell the property sooner, but it has to be handled a certain way.

5. Understand the flipping rules for non-licensed contractors. I'm not sure if its nation wide or just washington, but here you are supposed to have or be a licensed contractor in order to flip a house with more than $500 in repairs.

Hope that helps!

Wow that is crazy!

There are some awesome deals in Seattle and a lot of money to be made. The auction and MLS is too competitive at the moment, but the new construction deals are easy because not everyone can do it and you can't beat the profit.

I'm working on a new house with a sound view, with a private loan my out of pocket will be $141,564 and my profit is $99,221... thats an ROC of 70%. These kind of deals are everywhere!

I knew I would get that question... Yes and No.

If I am financing in my repairs then yes. If I am buying an REO and paying for my own repairs out of pocket then No.

I put 20% down based on purchase price, and its 4pts 12% interest for 9 months.

If I need repairs, then I have to submit a budget, get an appraisal and then I put 20% down based on purchase price + repairs.

If its a rental that I am buying to hold, then its zero down (but a bank account collateralized as 20% down) w/appraisal.

Even if we did have to do an appraisal, it wouldn't change the initial terms of my offer. The appraisal does not determine the amount of money we borrow, its more or less making sure the value is there. I have never had an issue based on appraisal.