BP Podcast 041: How to Profit Through Long Term Flipping and Lease Options with Douglas Larson

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On today’s episode of the BiggerPockets Podcast, we are excited to bring you a fascinating interview with real estate investor Douglas Larson.

Douglas has been investing for over 15 years, doing everything from flipping, buy and hold, lease options and more. Additionally, Douglas has some great stories of working for several weeks on a Guru sales floor, and sheds new light on the shady sales world that we, at BiggerPockets, stand so strongly against.

You definitely don’t want to miss this entertaining and informative show!

Read the transcript for episode 41 with Douglas Larson here.

Listen to the Podcast Here

In This Show, We Cover

  • How Douglas started investing in an expensive location
  • Tips for starting while working a full time job
  • How to encourage your spouse to support your REI dream
  • Tips for bidding for properties in online auctions
  • “Scandal” in the online auction world
  • Working with your spouse in a real estate business
  • Lessons learned while working the “Guru” sales training
  • Tips for dealing with contractors and keeping them on the job site
  • And a lot more!

Links from the Show

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**Also – be sure to check out this great article from Douglas from over in the BiggerPockets Member Blogs with even more information from Douglas, as well as some photos of some of the properties mentioned in the show!  “Bigger Pockets Podcast Show 41…” **

Books Mentioned in the Show

Tweetable Topics

People pay good money for turn key investments (Tweet This!)

A lot of people can talk story – but not everyone get’s it.(Tweet This!)

Luck doesn’t fall from the sky. You make your own luck.(Tweet This!)

Connect with Douglas

Douglas’ Website: LuckyLarson.com
Douglas’ BiggerPockets Profile

Josh and Brandon at FinCon13

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About Author

Thanks for checking out the BiggerPockets Real Estate Investing & Wealth Building Podcast. Hosts Joshua Dorkin & Brandon Turner strive to bring top-notch educational content and interviews to our listeners -- without the non-stop pitch prevalent around the industry. With over 80,000 listeners per show, the BiggerPockets Podcast has become the biggest real estate podcast in the world. But don’t take our word for it. We’re the top-rated and reviewed real estate show on iTunes — check it out, read the reviews on iTunes, and get busy listening and learning!

39 Comments

  1. I enjoyed the interview! Hopefully there were some helpful nuggets of wisdom too.

    My wife wanted to add that she doesn’t really enjoy the houses with dead cockroaches and dog crap, or the smell of wet Labrador, but she would love to be a featured designer on the new hit series, “BP NATION RENOVATION”!!!! Oh, yeah, this is gonna be big!

  2. Alex, If they are legal in your state, lease options are a great way to:
    1. Generate a few thousand dollars quickly to re-invest (The down-payment)
    2. Create a passive income stream immediately (Monthly lease payment)
    3. Get market value or higher for your property
    4. Reduce and delay tax liabilities

    Maybe Brandon and Josh can add a Lease-option contract to their other great forms on the resources page.

    • Hi Douglas,

      I didn’t even think to look at the legality of the lease-option in the State of WI, but I will looking into it. Nothing more fulfilling than being able to offer home ownership to a family who wants the property but would otherwise not qualify for traditional financing!

      • Alex, helping out families that need a hand is a great feeling and I love a win/win! Just make sure that the win/win includes you as one of the winners!

        Before starting a lease option with a potential buyer, have them open their books to a mortgage broker that you recommend. That broker can tell you if the applicants are good candidates for a purchase in 12-24 months or so. Sometimes buyers just need to save up some down payment money through a lease option structure. Sometimes they need serious credit repair! Sometimes they are calculating criminals looking to take advantage of your flexibility!

        Take care and have fun out there!

  3. Tom Sylvester

    So I’m minding my own business, listening to the podcast on the way home from work. Douglas is throwing some great content out, then as normal Josh starts ragging on Detroit. You know, typically BP podcast. Then all of a sudden I hear him feel bad about hating on Detroit, so he decided to pick another city. Next thing I know, out of the blue I hear him mention Rochester, NY. Now I know Rochester is not the greatest city, but to put it on the same level as as Detroit????

    In all honesty, great cast. And I’ll set Josh straight as some point. He must not like properties with great cashflow. :O)

  4. @Tom Sylvester
    I will have to let Josh defend himself on the cities he chooses to disrespect….

    I will say though that 99% of would-be investors can find a good market to flip, buy cash flow rentals, wholesale or speculate on land within 30 miles of their home. There are great opportunities all over. A few guests on previous shows have even proven that you can wholesale, flip or have successful rentals hundreds or even thousands of miles away.

    I’m glad you enjoyed MOST of the content. 😉
    I hope you have some sick cash flow in Rochester! Tell us about it!

    • Tom Sylvester

      @Douglas – I agree with the 30 mile comment. I try very hard to explain that to new investors that think they need to invest across the country. Not that it can’t be done, but there are deals in your own backyard if you know how to find them.

      Cashflow property example – my first investment was ~45 miles from where I live. Purchase price was $26,000. Only repairs were paint/laminate floors (once the tenants moved out). Unit 1 is $550 and unit 2 is $675.

  5. Tom Sylvester

    Finally listened to the second half of the podcast today. Really enjoyed the discussion around gurus and the first hand experience from Douglas behind the scenes. Out of all the reasons that I am on BiggerPockets, my #1 motivation is to save as many people as I can from spending money on the gurus.

    PS: Josh redeemed himself after the Rochester diss by bringing up the guru discussion and really driving the point home after Douglas’s fantastic story.

    • Working in the guru inside sales room was not the proudest moment in my life but I learned a ton about the dark side of real estate mentoring. Since then I have told my story to lots of people and I hope I have saved many of them thousands of dollars and lots of heartache.

      Bigger pockets can provide great education and inspiration, and then combined with an effective action plan, “failure is not an option!”

  6. Silvestre Madrid on

    I’m sitting here listening to show 41, great so far, I’m right at the part where he said they stripped the walls and took the wiring out because the government was listening. I work for the phone company and working in the field I’ve definitely run into my fair share of characters. I’ve run into 2 people in the last few months that have said the exact same thing. I was working on a telco terminal outside a apartment complex when a woman came up to me and said that the government satellites & wires were manipulating her! Say no to drugs ladies & gentlemen. More specifically meth!

    • You’ll have to ask Josh and Brandon about the fox vid. Gotta be an inside joke with those guys. That singer is hilarious though. Ive seen a couple of his vids. He’s like Josh Groban meets Weird Al. Making any kind of tie-in with real estate though would be a big stretch.

  7. Hi Douglas,
    Really enjoyed the show and especially appreciated your ability to operate in areas different than what is typical lower cost flips. Am wondering how you deal with your places after they are rented out and then sold. Are you finding you have to do a lot of work or just some touch up and carpet clean? Always thought once someone rehabbed a place they hated to rent it for fear of having to rehab again after renters leave. Maybe you just have very decent tenants?

    • Good questions Jeff, . . . One of the reasons I do lease options is to create a feeling of ownership for my tenants, which leads to better maintenance of the property, even if they do not proceed with the purchase. Also, In nicer areas, with nicer rental properties, you will attract higher-caliber renters to begin with. If you screen carefully you can find people that will take care of your investment. When good tenants do move out, usually a carpet cleaning is all that’s needed.

  8. There is talk on the forums of the upcoming Dodd Frank changes in January 2014 for lease options etc.

    Douglas do you see this killing this niche of investing for you or how will you adapt around the changes?

    • Very interesting Joel.
      I can’t say I’ve heard anything about federal regulation of lease options. It has been a state matter up till now. That said, there are always ways to adapt. Seller financing, land contracts, agreements of sale are all adaptations. In the states I have lived, lease options are a way to retain all the rights of ownership of the property (along with the liabilities) while creating a feeling of ownership and equity-building for would-be buyers.

      On the flip side, I would be much more hesitant these days to do a lease option as the lessee. Too many property owners have simply taken the inflated rents each month and neglected their mortgage payments, especially in cases where the owner was under water. Then, one day, the renter, who thinks he is building equity, gets an eviction notice from the bank! Yikes! One way to gain some protection from this is to insist on mortgage payment verification each month, including PITI transparency.

    • Glad you liked the show Jon.
      All markets require some creativity and finesse. The resort markets have some nice perks but they require a little more creativity for the beginning investor. I always hear that it’s too difficult or expensive to invest in resort towns but that sentiment just helps to keep the competition away!

  9. Awesome webinar by the way. I can totally relate to the guru companies, and being blown away on how bad & wrong things are being done. I Worked sales in the traveling circus !! Oh I mean the seminar circuit.

    Douglas, You mentioned how you also buy vacant land when it’s on extra sale in the late fall and winter and sell in the spring.

    What is your source for getting these vacant land leads? Where do you find them ?

    What is your criteria for buying these ? Are they fully buildable with sewer and water already in?

    Thanks in advance,
    Anthony

    • Hi Anthony,
      Glad you liked the podcast. Josh and Brandon are fun and crazy guys, with a passion for emanating information!

      You asked a couple questions about finding lots. I only buy improved land with all services stubbed to the lot or available in the street. I find them through auctions and on the MLS. I have gotten the best deals by buying 3-5 at a time from a bank and then I sell them one at a time or on a take-down schedule to smaller builders. Lately I am looking to joint-venture with small builders to build spec homes. The most I have paid for a lot is $86K (Story Here: https://www.biggerpockets.com/forums/223/topics/102386-my-iphone-made-me-46k) and I have bought several under $25K.

      I always pay cash but I have borrowed hard money from other properties to pay cash for lots if I know I can turn them around fast. Sometimes I improve the lots cosmetically with weed control and/or a little grading with a rented bobcat or trackhoe. I have very limited experience with large machines but it’s fun to play in the dirt sometimes.

      Are you a land investor or just toying with the idea?

  10. Yo Doug
    Great podcast
    Where can I learn more about lease options?
    I have always wanted to do LO deals but was always concerned the tenant buyers “equitable interest” gained during the 2 to 3 year lease period in “lawsuit happy” So Calif.
    Of course I would be extremly cautious and vigoriously screen and qualify any candidate.
    From your perspective who he teaching lease option in the best fashion.
    Can you reccomend books or trainings.
    I wish you the best and contining success in real estate
    Dave Doyle
    Monrovia Calif

  11. Sorry Doug
    Just to be clear,I am concerned about the legal consiquences if the tenant buyer cannot get financed at the end of the option period.
    People can look great on paper,you can qualify them and all that good stuff,but they may drop the ball at the end of the trail ,,,can perform ,they become angry and want to sue.
    Some teachers say consider giving them part of their option money back.
    What your take on this aspect of lease option?
    Thanks
    Dave Doyle

    • Dave, I’ve been lucky with tenants. If you landlord long enough though you will have an unhappy or a sue-happy tenant. All my lease-option deals have worked out or I have simply kept the non-refundable deposit and we have parted ways. Good screening and great contracts is the key. I have had some rental tenants that became chronically late on monthly rent though. They would pay the $100 late fee every month but i wouldn’t get the check till the 10th or 15th, even with reminders and pay or quit notices. The extra money was nice but it wasn’t worth the stress. I finally offered them all of their security deposit back if they could vacate in less than 2 weeks and they did.

      If a lease-option went bad due to buyer’s financing qualifications, and the tenants were uncooperative I would certainly consider giving a portion of their deposit back to get them out and start over with new tenant/buyers. No landlord likes return money in a situation like this but it can be much better than a lengthy and expensive eviction process!

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