Recently I was trying to close a deal with a tired landlord. I offered a subject-to deal to the landlord, as I always do, with properties that have a lot of cash flow and I hope to own for the next several years.
However, this landlord wasn’t interested in the sub-2. I did my best sales presentation, I overcame all of his objections, but he still didn’t want to do the deal with me. Why? Because he didn’t like the fact that I would own the house and that the mortgage would remain in his name. This is a common objection I get all the time, and in which most cases, is easily overcome.
But again, this guy wouldn’t do it. So what did I do? Did I say, “thanks for your time Mr. Seller and walk away?” Of course not. Once I knew that the sub-2 was off the table, I went to my back up plan, which is always the lease option.
I explained that the lease option is very similar to the sub-2 deal, but that he will continue to own the house and simply be giving me an option to purchase it down the line. The seller was interested in doing this and it appears we will be closing the lease option deal later this week.
So why did I offer the lease option and why did he accept it?
I offered it because I want to make money, that’s why. If you want to be successful in this business you have to become a well-rounded investor who can close all types of deals. If the first deal you want to do won’t work, then go to plan B, plan C, etc.
With rental properties that I want to own for several years, I always try a sub-2 first. I want the tax benefits and I want to own the house and not have to worry about a seller causing me any problems. But there are many savvy landlords who will do a lease option and not a sub-2 because they want the tax benefits and to remain as the owner.
If this is the case, I’m not going to walk away from hundreds of dollars in cash flow and the potential for tens of thousands of dollars on the back end. However, one thing I will do – and highly encourage you to do – with a lease option is to check out the seller and make sure everything is “on the up and up.”
Getting the seller to fill out an authorization to release form to verify the true mortgage balance on the house and the true monthly payments. This also means checking the title on the house before the paperwork is signed. The last thing you want to happen is for your tenant/buyer to try and buy the house two years from now, just to found out there’s a massive lien against the place.
If you take proper precautions, then closing lease options all day long will make you a lot of money and a comfortable living. But if I were you, I would always go for the sub-2 first, to have the control of ownership. Also, don’t forget to learn multiple ways to close a deal so if you get told “no” the first time, you can try for something else.