Discussion Forum
Discussion Forum
Up Next
Video Shorts
Featured Story
There's a constant source of clean water for you to use, and all you have to do is collect it.
Featured Video
How to Install Exterior Window TrimHighlights
"I have learned so much thanks to the searchable articles on the FHB website. I can confidently say that I expect to be a life-long subscriber." - M.K.
Replies
*
Aj, the nice lady that put on the lease option seminar is Wendy Patton.
There's a website somewhere, but I can't find it.
Anyways, the lease option (some people call it "rent to own" around here) is a very easy way to acquire property with little or no money down, and minimal risk. Even Steve could do it right now.
In a nutshell: Ask for a 24 to 60 month lease at market rates, with an option to purchase at any time for a set price. You can offer their asking price, especially in a market that is appreciating. Include in the offer the right to sublet. Make the offer contingent upon you getting a tenant in there. Allow them to continue selling their home, while you search for a tenant.
10% will sell on a lease option. 90% won't. That's okay, concentrate on the ones that will.
Find someone that wants to buy on a lease option. People with "B" credit are prime candidates. People that have just went through bankruptcy are best candidates.
Sell on an 12-18 month lease, with an option to purchase.
The day that your buyer/tenant moves in is the day that you trigger your contract to buy/lease.
Example: Sammy seller has house on market for 100k. It's not selling too fast. He starts to think about renting it because his other home is ready to move in. He's turned down several lowball offers from bottom feeders. You show up and offer him the rent that he was thinking about and full price. He loves you. Your offer is this. 2k option payment (his to keep forever) and $600 per month. $100 is applied toward the 100k purchase price. The option period is 3 years. He agrees because he can keep selling until you bring a buyer/tenant. He has nothing to lose by accepting your deal.
You advertise for a low down, "no credit check", "rent-to-own" buyer. Billy the buyer calls. You tell Billy that he needs $3k down as the option money (yours to keep forever). The monthly rent is $700. If the rent is payed on time, $100 will be applied toward the purchase price. The purchase price will be $115k (in an appreciating market) and the option length will be 18 months.
Lets see what just happened: You make 1k the day the tenant move in, which triggers the contract. You make 100 per month cashflow. You make 14k at the end of the 18 month option period, assuming Billy fixes his credit and qualifies, and buys the house. If he lets the option period expire, you sell it again.
Total income after 18 months: $16,600 on a $35.00 newspaper ad. Return on investment: It's too high....you figure it out.
There are specifics that you might want to know.
Go ahead, tell me I can't do that....
blue
*The concept is internally sound, but subject to some external forces that could cause problems:1. Increasing market price is subject to economy. Not that we are now in a depression, after housing prices increased dramatically for more than a decade.2. You have to find a house that is sufficiently desirable that someone will want to buy it but not sufficiently desirable that someone will buy it outright. Why would seller, who wants to sell, rent it to you on a long term lease, thereby tying up his equity? Only because he can't get rid of it otherwise. Why is that?3. You become a landlord, which is a cost that must be subsumed in the equation. You have to replace the toilet, fix the window, watch that the house is properly maintained. With some tenants, this isn't a big deal. It is with others, and can prove to be expensive.4. What to do when your tenant moves out in the middle of the night? You're left holding the bag on the monthly rental, which eats up your profits immediately and sucks advance money out of you before the payoff at the end. And it could take a while before you find another tenant interested in the deal.It's a house of cards. It may work, and you win, or it may not and you lose. It is not a sure thing, so you have to be prepared to take risk. And the return isn't that great in real terms, because percentage ROI doesn't pay the bills, only dollars do.SHG
*SHG: Item #1.The market. Huge question. In fact, the market question will induce many more to sell on a lease option, especially if they are getting near their asking price. I'm quite sure that their will be some flattening of the market, if not deflation. As such, the option price may have to reflect that reality. Instead of buying at FMV, the best offer might be 90% of fmv.Deflation will put a lot of people "upside down" (larger mortgages than the property is worth). This could lead to many more foreclosures as well as people leasing as a way to stave off the bankers.All bets are off if serious deflation, as opposed to ordinary market corrections, become the norm. Either way, real estate investors will manage quite nicely.#2 Remember I mentioned that only 10% of the sellers would consider a lease option. There are many reasons. Heres a few: overleveraged, two house payments, divorce, etc. Burnt out landlords would certainly sell on a lease option. In the seminar, Wendy called (on speaker phone) four ads that were seeking tenants. Two of the landlords agreed to sell their homes. Another great source is someone whos house has been on the market for a long time. Wendy now gets most of her houses from realtors who is about to lose a listing and they (the seller) mention that they might consider renting it out.#3 The repairs and maintenance is taken from the seller and passed on to the buyer. No landlord headaches there. There is a 60 day warranty period for major maintenance items like the furnace, ac, etc. #4 Tenant moves out? Evict and resell. You keep the option money. It might take a long time, but then again, it might not. Remember, it can be offered at substantially less down depending on how much you already took from it. One of the important things to do is to not gouge. If you have priced the house close to fmv (10% higher than fmv, plus expected appreciatioin for the term of the option) then the buyer will not be angry and they will more than likely want to protect their down payment. They have a vested interest in making the deal work. Wendy says that 60-70% make the purchase. She said that she has one that she can't get sold. It has come back four times to her and she simply gets another 5k when she resells it for the option again.Also SHG, if a new tenant simply cannot be found (unlikely, unless a severe market collaps occurs) then you can simply renege on the next payment that you owe, and the original seller will evict and get to keep your option money. Remember, that money came from the buyer though and is still isn't out of your pocket.SHG, in any endeavor, there will always be some risk. Without risk, there can be no reward. Knowing the market that you work in will go a long way toward "managing" the risk. If you know what the worst case scenario is, then you can make an intelligent decision, based on fact, not fear. The numbers that I mentioned were conservative. Wendies biggest gain was 40k in 14 months. She doesn't bother with anything unless it shows a potential for 20k, although she did sound a warning about the lack of expected appreciation. her new strategy will now be to try to make a little more in the buy. For the last five years, she was more than willing to pay the asking price. blue
*Blue and SHG,Hello, I've been lurking for awhile since James stopped over on "my" board, PWC BB. I'm a contractor and I own a 5 unit building for 3 years now and would like to expand. This conversation topic you two are discussing is fascinating to me...not something I've ever heard of before.I have a few specific questions, but am also wondering if there is a book that goes into more detail outlining this process?So ok, you get an owner to lease the home to you at a buy-out price of 100K. Now you find a buyer...what do you set their buy-out price at? Do you "appreciate" the property instantly over what you "bought" it for? It seems that you increase their monthly payment by $100 over what you are paying the original owner, right? So does this mean you are making only $100 per month?What happens if your buyer turns out to be a deadbeat and doesn't pay you? That happened to my Dad once at his rental and it took months to get her lazy ass evicted out of there...won a settlement too, but never saw a cent. Is it the same risk for what you're doing, or can you throw them out faster due to the different "relationship"...ie, they aren't really renters.What is the average time span you set for them to buy? If its say 16 months, why do they have any better chance at getting approved for a mortage in 16 months? Seems to me like if they can't swing it now, 16 months isn't enough time to change things significantly... is your experience different as to this?I know that's a lot of questions...sorry, but this lease idea really has the 'ol gears spinning upstairs. Thanks in advance for any information you have time to provide...Q
*Q, I love it when lurkers come out of the shadows...Don't worry, you can't have too many questions...only too many answers....Anyways, if you agree to buy at 100k, you will be selling for 110k or maybe more in an appreciating market. Wendy (the seminar speaker) automatically adds 10% to her buying price and then adds the rate of appreciation x the length of the option period. This formula has worked well for here for the last five years or so, but she cautioned that the flat market might alter her thinking to some degree.That 100k house can and will be sold for 115k to someone with "b" credit. The mount of cashflow each month would vary a great deal on many factors. Typically, the first thing that you will do, when interviewing your prospect is to determine their monthly ability and down payment. Wendy steadfastly wants 3% minimum but preferably more. If they don't have it, she might take a little less and spread the balance over the next few months. It wouldn't not be unreasonable to get a nice spread depending on the local market. If you lease option it to a deadbeat, and have the 3% option payment, you simply evict them. The option payment is nonrefundable. In the case of the 100k house, the 3% would be $3450 (3% of 115k). Wendy says that she always can find buyers for these deals. Her hardest part of the job is finding houses. She says she easily re-lease/options it. She says she's sold one four times at 5k down. She also said that she had one couple walk away, after two months from a 5k option payment. The worst case scenario is to let the original seller evict you. Your still money ahead in the equation and no harm to your credit score.Your dad didn't move fast enough on his eviction. Always, always start the process immediately. Wendy told us that she had one tenant that had trouble paying the $675 rent on time every month. Every month, she would go through the eviction process. Every month the tenant would come up with the rent, plus court costs and her lawyers fees. Basically, the tenant couldn't afford the 675, but manaaged to pay over 900 every month! War stories....I love them.Wendy buys and attempts to get as long as an option period as possible, typically 3 to 5 years. She sells and trys to get 12 months, but will go to 18 months or maybe more depending one the person. Ultimatly, she wants the buyer to succeed because the biggest gain is when they close. Wendy claims that 12-18 months is enough time to repair credit, assuming that they are trying. She says that 60% actually do. She looks for tenants that are showing signs of making better decisions, or in jobs that will pay more. An apprentice tradesman would fit that bill. She also checks their refereces dilligently. Any lies and she would sell to them. Picking the client carefully is indeed wise. She says that she has one young woman, age 24, paying 1400 per month, on time for two years by working two waitress jobs. The option period expired and so did Wendy's. Wendy wasn't able to renegotiate and get it extended another year. She felt so bad that she took out a mortgage on her own and bough the property, just so she could extend the option period for the young lady. Wendy knows the power of public relations. She ate the closing costs just because the woman works so hard and couldn't afford any more. Q, I don't mind those gears spinning. Mine are about ready to spin off. I'm meeting a guy this weekend to make my first offer. I've already had one woman agree, informally, to let me buy hers on a lease option. Her price is so high, that it's probably not realistic to bother...but I might anyways. I need inventory. I'm thinking about selling my own home on a lease option right now. In fact, I'll sell it to you, right now...269k, 2k per month, 18 month term, 5% option payment. Immediate occupancy.blue
*Hey QWelcome to the BB. Did you figure out the preferences :)Barry
*Hey Barry,Yeah, like you said, it just takes a little getting used to. Do most people have theirs set so the posts with the latest activity go to the top?Would you say the number of participants here compares to how many are on PWC?Anyway, thanks for the heads up...Q
*Blue,Thanks for all the info...this little idea you stumbled accross has a lot of potential I think. Some pitfalls too, to be sure...but like you said, everything has a risk factor. Who is Wendy and where did you come across her seminar? Does she have a website? Did she provide anything besides the basic idea and how it works...like support materials, etc...? And how much was the seminar? Is this the basic jist of all those infomercials that claim to help you buy real estate/get rich, that you see on TV...like there's that one asian looking fellow...?I would think one of the major pitfalls to avoid is buying a house that needs big ticket repairs in the near future...like a roof, electrical code violations, gas or sewage lines, etc. Did she address that issue much?I'll be interested in keeping tabs on your progress...I hope you'll post as you take additional steps. BTW, do you tell the original owner what your intentions are, or do you let them think that you will be the ocupant...I could see some getting nervous like they are afraid they're getting taken advantage of because the idea is foreign to them.I certainly understand your enthusiasm...the idea appeals to me as well. Best of luck pursuing it...Q
*Q...post the paint site again...I lost it...and would like to go there once in a blue moon...would like to know if any paint pros have a trick way to pain chainlink.near the stream painting tennis court fences this Fall,aj
*Q, there are a number of people running seminars on this type of thing. Stay up late some night and I'm sure you'll catch an informercial.My point is not that it can't or won't work. It can if all the pieces fall into place. But like any other venture, it can also fall to pieces if things go wrong. So, if you are willing to put in the time to get everything lined up as best you can, and have the risk tolerance (and cash) to handle problems, it has real potential. But if you can't afford to carry the project if needed, or you can't afford to lose on the resale, then this is not for you.SHG
*> would like to know if any paint pros have a trick way to pain chainlink.Use a long nap roller, following with a brush to catch the drips (or so I've heard).Rich Beckman
*Tried roller...terrible...3 problems...drips like crazy...doesn't get paint into back of twist in link. glops paint on but still misses like crazy...Thankfully the fences I am doing now just involve the frame being painted...The last time I worked on link...I sprayed down the fence one direction and then back the other direction. used five times the paint you would think and totally covered the drop clothes. Fence came out gorgeous though. May have to try HVLP next time.near the stream off to fence painting fun,aj
*aj,The PWC BB addy is: http://www.paintstore.com/board/list.php?f=4In the gold toolbar are some options that change how things appear...by hiding threads on the main screen, you see only the topics (my preference)... then click on a topic, and there's the "flat view" or "threaded view". Flat view shows you All posts, but you can't tell who's posting to who...so I prefer threaded, you have to click on each post you want to read, but they appear in order, plus the "outline" is always there if you scroll down, unlike here.As for chain link, its kinda like lattice in that it sucks no matter what. If possible, paint it when down on a hard surface...drop a good sized area and keep shifting fence over drops. Use a 1 1/4 lambskin (assuming oil paint) cover... if doing lattice with latex, use a 1 1/2... but then just mop it on. If you use DTM oil (direct to metal) with a little Jap dry cut in, you'll be able to flip it and do the other side pretty fast. If you work it in and aren't shy about dipping your roller, you won't have any misses...provided you use a heavy enough nap. Runs will drip off the back for the most part...worrying about the "finish" on chain-link is usually not a high priority...a nice clean coat, all one color, will likely satisfy.Rolling will also work fine when its standing, but too mush flex can be annoying. Having another person on opposite side helps, and also you can catch eachother's runs by dryrolling back over a section they just finished.The trouble with spraying is that there are really 4 sides, or angles, that you need to shoot...down, up, pointed left and pointed right. If you don't, you'll have misses...if you do, you'll blow through a lot of paint and still get runs cause you've put so much on. But an airless is still my best bet...price the extra paint into the bid. Throw a drop or plastic over one side so as to catch your overspray and go to town. You are correct that a HVLP would dramatically cut down on product usage, but it'd also greatly increase the time it takes....even with a pressure pot feed. The only time this trade off is worth it is when detail/control, finish, and/or smaller sized projects are involved. Optimizing usage of a HVLP takes a pressure pot and an experienced operator...for example, I could spray out 20 6-panel doors with my 4-stage HVLP and come out ahead or equal to if I had used the airless...but very few people could say that. Most painters would come out significantly behind if they used a HVLP instead of their airless...even considering product savings.And a chainlink fence, I'd want to maximize speed and efficiency of labor time...and that points to an airless. The 2000psi of an airless will get paint into all those nooks and crannies easily, while the 6 psi of the HVLP will require you to pay close attention and direct the paint into the nooks and crannies.Hope this explanation made sense...Q
*Q....Awesome post....I am so glad rk hooked us up...There are good things that come from so many things gone awry...I figured the airless was the best...I am glad to hear your whole explanation though...I would be upset to think that some guy had a secret 1 gallon of paint and one hour of time trick!near the paint stream trading speed for a few gallons of paint,aj
*Q, Wendy is a member of the Real Estate Investors Association that I am a memeber of. She has a website but I don't have the URL at the moment....Found it!http://millenniumrealestate.com/And yes she did sell some support materials, like a dedicated buyers and a dedicated sellers contract specific to Michigan. Her package was $299 and included enough for an interested person to get a deal done. Additionally, she's offering a half hour consultation to the registered buyer. My brother bought the package and will be using her services. If I run into a snag, I'm just going to drive on over to her office and let her steer me on the right path. I'll have no problem paying her a consuting fee of whatever she wants...probably in the $150 per hour range.The seminar I attended was a one day workshop cramming in a normal three day seminar. I payed a very modest $90. Actually, she did address "handyman's specials". She told us that she used to do rehabs and flips and lost her crew formman. The crew fell behind and she decided to try lease optioning a handy mans special. She got so much response that she quit doing the rehabs and just flips them as is. I'd like to comment about the tv specials. The marketing is desingned to draw in many get rich quick types. But the reality is that real estate investing is a serious business that takes serious effort. It is work. If it doesn't interest you, you probably should stay away. One misconception about the TV "zero money down" deals is that the sellers don't get money. That is blatantly false and often, they'll get as much or more as if they sold conventionally. Zero money down, means using other people's money. For instance, one technique is to get an equity line on your current residence and use that as a down payment to secure an investor's loan. Realistically, I'd be able to secure a very large piece of investment property, using 100% leverage. It would be a zero down deal, and quite possible I'd get money back at closing. Lease options are another type of zero down deal. The sellers will often get a higher selling price, using this technique. It involves a blend of selling high, while losing a little on the time value of money. By balancing the two, both parties can make it work out. Zero down, does not mean the seller recieves nothing....The original owner is aware that the house will be subleased optioned. It is specifically stated in the contract. They also need to be flexible to let you in to show their home, othewise you wouldn't ever be able to find a tenant yourself. Building that trust will be the foundation of the deal....blue
*Shg, which cash are you worried about losing? You are missing something here, or maybe I am...Here's Wendy's site. Check out the available lease options. Notice the very attractive monthly outlay for some very expensive homes...http://millenniumrealestate.com/blue
*blue, you have to remember that I'm a lawyer. I don't hear from people when the deal works, only when things implode. So I hear about what can go wrong. If you do this enough, eventually something will go wrong. But again, it doesn't mean that it doesn't work. There's potential for failure in almost every endeavor, so this isn't any different. However, there are traps here for the unwary, and it's not as easy as they make it seem to do it right and avoid the pitfalls.That's all I'm saying. Don't blame me cause people end up losing money. I'm just the messenger.SHG
*Actually SHG, I pondered hard on the way to work today and thought of something. If I skip a rent, and the original owner forecloses on me, they could possibly bring suit to force me to fulfill the contract. The likelehood of a successful suit is low though. Doing it right, with full disclosure is essential to minimizing legal liability. Damages done by tenants is another possibility for loss. Keeping the sales price in line and not gouging is one way that Wendy and other investors suggest to minimize the "retalition" factor.SHG, I won't blame you if someone (me) ends up losing money. I already know 1000 ways to lose and I won't mind learning one more...blue ps Admit it, your jaded.
*Here's an interesting guy. William Bronchick is a well known (in the real estate world) lawyer. He has many creative ideas. This is one of his articles on lease options.http://www.legalwiz.com/articles/lotips.htmblue
*>ps Admit it, your jaded. Admit it? It says so on my business card.SHG
*blue....my thoughts....I am one to stay away from schemes to make money....Pyramid schemes...you name it.This lease option stuff relies on so much that i do not do at this time. I have no landlord experience and do not know if i want any. I like designing systems, I do not like studying other peoples systems. I like playing sports over watching sports.I just don't feel the fit...but would like to follow your efforts to play this new game.near the stream doing what i did best yesterday,aj
*aj,Where abouts do you live...and which range does your mountain belong to?Curious Q
*Adirondackjack....aj for short...one on the mountain when my name changes too often,near the west bank,ted
*I kinda figured that you weren't too impressed by your lack of comment.I'm really liking the lease option, especially for properties that I'm seeing in my neighborhood. It seems that many are overpriced around here and have very little chance at selling conventionally. The reason that I like the lease option for these folk is because it gives them one more opportunity to effect a transfer of their property, and their debt. Because the starting prices are so high, there really won't be much markup available. Instead of the 20k minimum that Wendy looks for, I'm looking at 8-10k max to help these people move their houses.I'm now ready to put my first house under contract. It's taken me a little longer than I thought to digest the contracts and understand the deal enough to present it. I plan on signing my first tomorrow. I'll keep you posted.blue
*Peeps, I just reached agreement, in principle for my first buy on a lease option. Here's the scoop.The guy went through a divorce and wants to move closer to his kids. He's burdened by a 160k mortgage on property that is probably only worth 150k. It ain't gonna sell, especially by owner because it's overpriced an the guy points out all the flaws.Anyways, I offered to buy the house for 130k cash and the guy looked like he was suicidal. I instantly mentioned that I could pay the full asking price of 160k on a lease option. He was estatic but wanted to know what a lease option was. I explained and told him that he could still keep trying to sell and a sale would automatically cancel our agreement. He thought it's a wonderful idea.Now the tricky part. He owes 1300 per month for taxes, insurance, principal and interest (PITI). I want to lease it for only 750. I mentioned that I'd like him to subsidize the ultimate tenant by leasing to me for less than his PITI. He was reluctant but agreed as long as it was close. We haven't agreed on the monthly rent yet, but I think it will be around 1000k. Im presenting the offer in writing tomorrow and I'll keep you posted.blue
*Blue,If that $1300 includes tax and insurance, won't those be your responsibility once the deal goes through? IOW, isn't the only thing he'll be responsible for just the actual mortage payment, and you'll pay the insurance and taxes?Also, why would he accept a $300 a month loss? Just to get rid of it?Thanks,Q
*Q, he would keep paying the the taxes and insurance. He'll get the tax benenfits too (deductions). He'll have to notify and change his insurance to landlord's insurance-I'll be his tenant.The reason that he will accept a $300 per month loss is rooted in his needs: he needs to get some debt relief (to buy expensive toys for his growing boys), he wants to move closer to his estranged boys, and the house is overleveraged thus forcing the selling price to be higher than market value. Basically, he already spent his equity and now must pay the piper, if he wants to move. He can pay it in one big chunk, or pay it monthly.After he takes his 300 hit, he'll still be able to move closer and find a place to rent. If he gets into a place for 900 per month, plus his 300 loss, he'll still be 100 ahead each month.I'm not sure how much loss he'll take each month. He mentioned three times that the number per month needs to be close. I'll start with a low offer, and point out that I'm offering to buy at full price. One sure way to find a subsequent tenant/buyer is to offer low monthly along with the higher selling price. If he insists on too high a monthly, I'll still sign the deal. It'll just make it almost impossible for me to find the subsequent tenant. But I'll try.blue
*Blue.....I haven't read thru this all yet.....and don't have the time right now.....will try over the weekend......BUT.......one word of caution......about the evictions...... My wife's father owns several rentals. He lives and owns in the same small town he's was a police official for many years, then retired to work for the town gov. He was/is also best friends with the mayor.....and has close ties to all the city/county officials. Many awards with many favors to collect. It's been years.....he now has all the places rented to good renters.....but even he has been burned by bad tennants. There was one case in particular where the people lived like 6 to 9 months rent free......as he followed the eviction procedures....and the locals helped "speed" things up. Just as the warrents for arrest were about to be delivered......they packed up and moved out. Went to court.....again awarded cash.....and again never say any of it. Bad renters know how to work the system better than any lawyer. Personally, I'd run from anything that seeks out bad credit ratings......what do they have to lose? Acting fast has nothing to do with getting someone evicted. There is no fast way.....and if the seminar said that....they've already started lying! Just look into it farther.....results may vary. Jeff
*MY experiences via my Dad's rentals are exactly in line with Jeff's...there isn't a fast way to get them out if they know how the system works. He had a renter live rent free for 6 months before the final eviction came through...won in court and never saw a dime of it.I know you used an example about Wendy starting eviction papers every month with one tenent, but that only worked because the tenent payed up...if they had worked the system, Wendy would've had to wait months before getting them out and never woulda seen a cent...and that could equal a big loss. I currently have 5 units and fell that by pricing them high I keep out the unwanted's...so far I haven't even had a late rent and its been over 2 years...knock on wood. But since this is an investment property, I think I have less to lose than on the lease setup because all of your profits are tied up in a thin margin. Would you agree that you have more exposure, or would you say it's about the same? How bad would the loss of 6 months of rent hurt you when all's said and done?Also, I forget how it works that part of the tenents payment goes toward purchase...in the one you have now, if it work out to be you pay the owner $1000 a month, how much will you chargw the tenent you find...and how much of that goes toward the purchase of the house?Thanks,Q
*Q, as a landlord in Chicago of units with 8 apartments, sometimes it behooves one's self to use, let's say, more less conventional tactics to get them to leave on themselves as opposed an eviction.
*Blue it is obvious from your posts that you like to dabble in real estate. Good for you. You also have the "evangelical zeal" as some of my Baptist friends would say.But I bet a lot of us know a lot of real estate folks who aren't hardly making it. Or, if they are have been up and down several times with the market. That points to the idea that unlike the salvation promised by the Baptist evangelical this real estate venture you are fond of is not a sure thing. It brings big risks for all and big rewards for a few.Now I have been the real estate route. Frankly it paid off very well for me, most of the time. But, when the cash flow required me to sell and the market was down, there went another 50K out the door. Or, when I had a buyer or tenant who didn't keep the other end of the deal there went my profits. Well you get the picture. This isn't a business for the faint hearted or the learner unless you have a lot of cash to put on the table.
*Sonny,I don't suppose you'd care to share some hypothetical scenarios that could possibly induce a tenent to wish to leave on their own accord?Oh, and no roaches..I live here too you know! ;)Thanks,Q
*Q, they are not anything I'll care to put in print.
*Jeff and Q. One important differentiation between rentals and lease options is the fact that the lease optionor is buying the house. They are required to put a substantial option fee (non-refundable) down and pay monthly rent. The 160k property will require $4,800 down and 1300 per month. When the tenant goes into default, they lose the 4800. That fact is significantly different than a tenant using up their last month's rent and forfeiting a 300 dollar security deposit.Nothing is foolproof, nor without risk. Risk managment involves getting good info on the subject then acting on it. Higher downpayments would be wise for questionable subjects.In the real estate forum that I scout, one guy received a 50k option fee! Do you think he's worried about his tenant skipping town?blue
*Fred, I'll bet lots of people would like to be in the postion to lose 50k every once in a while.It paid off "very well", most of the time. I think that says it all.blue
*Blue,What methods are you using to try and find a tenent?Also, would you have bought the place for 130K if he said ok? Or was that a bluf?Thanks,Q
*Actually Q, I didn't really offer the 130k. I said "As an investor, if I was going to offer you cash, I'd have to offer you around 70 to 80% of the FMV which would be around 130k or so." I stated that figure that way, because I knew that he could not accept less than 160k without dipping into his pocket to make up the difference. I'd be skeptical about paying 130k cash. This particular property is speculative. It might be a very nice site for a commercial zoning and it has a potential of several splits that could receive city water and sewers. blue
*Okay, here's an update. My seller contacted me yesterday to tell me not to bother putting anything in writing. He wasn't interested in the deal anymore. I was supposed to bring him something today or tomorrow. After he told me the bad news, I replied, "Okay, Don.....what made you change your mind?" He was afraid of a tenant tearing up his house because the tenant didn't have anything to lose. "Oh, I'm sorry Don, I forgot to mention that you will be receiving a non-refundable option payment, plenty enough to give the ultimate buyer a strong incentive to keep your property in tip top shape!" "That's the biggest difference in lease optioning and standard renting" I continued. "The regular tenant never feels like he owns anything. The lease optionor actually does own somehing and has substantial money on the line."Long story short: He wants to see the offer in writing after all. Here's the last numbers mentioned (by him). 10k option payment, 1000 per month, 160 selling price. My first numbers were: 4800 option, 900 month, 160k selling price. Oh yeah, we're now talking about a 3yr deal. My strategy will now be: Ask him to do a little better on the option, and the monthly while reminding him that he: 1) is getting full price 2) is getting significant tax benefits 3)is relieved of his severe debt load and can get closer to his estranged kids 4) he will not be responsible for any maintenance-a landlords dream 5)someone will be making his mortgage payments, thus paying down his debt. I'll also insist on a longer option period if his numbers are too high. I'll have the tax numbers ready.....This is fun! And this is not that great of a deal. I'm practicing on this one because the more lucrative ones are on hold waiting....blue
*blu - Don't get the wrong impression. I still recommend that a person find their own niche and try not to be something they aren't. If you are a contractor leave the real estate and the banking up to the folks in those businesses.I'd guess that for each one person who made money in real estate dabbling I know ten who didn't. So, consider that branching out from the industry you know is a large risk that should be taken very cautiously.
*Fred, I'm not getting any wrong impression. I've been a contractor since the early 80's and have just now decided that it's not for me. Frankly, I think the business sucks. I am studying Real Estate as a business and fully intend to make it or break it in there. I'm certainly not too timid to give it a shot. Your suggestion to find a niche is certaily appropriate. In fact, all the people that attend the real estate investment club all have a niche. There are many, many ways to invest.Your skepticism is certainly not a new thing. It's quite common to hear "...you can't do that...." or similar things. For instance, in this thread, someone asks "Who would agree to a deal like that?" yet it happens all the time. Throwing caution to the wind, but studying everything that comes my way,blue
*Blue:Good luck on your new venture. I have dabbled in buying rental properties the last 20 years, in addition to being a contractor, even got my real estate sale’s license in the mid 80’s. I think there is a great opportunity in that arena. I would advice move slow, really learn the business and particularly the individual neighborhoods you are considering buying properties in. I have made mistakes by buying properties in the same city I have lived in all my life, thinking every neighborhood is the same. I think combining the two (contracting and investment properties) is a good way to go, maybe before you give up on contracting all together you should “ease” into investing? Just a thought, anyway good luck on your new endeavor.
*Well Blue you certainly seem to have your head on straight. For awhile there I thought you were trying to convince everyone else to join in your real estate gamble. Now I see that was just being enthusiastic about your new career in real estate speculation.Good luck, you are about to enter into a world of highs and lows that makes Las Vegas seem tame. Win or lose it is quite a ride.
*Fred thanks for the encouragement. I really don't care if anyone else ever does anything like this. This thread was just an extension of the rentals as a business thread. My SIL just stopped and got a verbal agreement on a 124K property. 1800 sf, 5 br, 1 bath, 2car gar. Needs roof, carpet and painting inside. He'll offer 115k as the purchase price. The lady already has another house and is glad someone is going to make her house payment. This sandwhich lease option is truly a win-win-win situation for all three parties. I hardly call it a gamble.blue
*AJ, I don't know if you're painting problem is out of date now but will try anyway. I have spent a fair amount of time painting lattice, so I can somewhat empathize with your plight. A teacher once related this to me, and although I don't know the truth to it, I though it was an interesting concept nonetheless. He said he was putting himself through college working the graveyard shift as a stock-boy in a large grocery store. He got word that some outfit was coming in to paint all the fruit and vegetable displays and assumed that he was going to get the direction to move everything off onto a pallet or something and then have to move it back later. He asked someone and they said it wouldn't be necessary. He wondered how they would do it, but no one would tell him. "Just watch and learn" was all he could get. It turns out that the painting company brought in a sprayer with some metallic paint and some device that they could magnetize the rack with. They merely hooked up the leads to the rack, and charged the paint with an opposite charge and painted away. My teacher thought it was amazing to see the paint get "sucked" onto the rack right around the produce. I'm guessing you probably don't have the necessary equipment, but I wanted to relate this somehow. Blue, my apologies for the hi-jack. I would add my two cents, but I don't have anything intelligent so will just keep quiet.Jon
*Blue-One question:If you are paying the seller $160,000 for a house you yourself said is overpriced by $10,000, then how in the heck do you think you can sell it for a profit when a loss this big is already built in? Are you a realtor?Okay, another question: Your target buyer is somewhat "creditally challenged". What makes you think they will get a loan to buy the overpriced house? And can someone in this department buy a $175,000 house at all? (See, I allowed you profit because you are a house-sellin' wiz...) So when they find out that they can no longer buy the house, what then? Are you going to finance it to them?Good luck
*Very good questions Dawg.The property in question is overpriced at 160k, but has some speculative value. For instance, it borders a village and could possibly be split into the house (with 2.5 acres) and two village building lots (.75 acres each). If the lots sell for 15-20k each, it makes the house quite a bit more affordable. It would be ideal for a carpenter/builder. The split is speculative because it would involve the annexation of the two smaller lots into the village (the village has a sewer/water system). Unfortunatly, the village does not have room for more sewer taps-there is an expansion planned. This deal is not that good, but there is some possibility. I'm willing to sign it up, if he is willing to lower his option demand, and monthly payment. I need the lower option demand and lower monthly payment to induce a creditally challenged buyer into the deal. He's already cut his option demands in half, and has almost met my offer on the monthly. I'm letting him simmer....blue
*Dawg, second question: I'm not a realtor.Third: The target buyers that are creditally challenged could be someone like me. I'm a self employed person with wildly fluctuating income. I couldn't qualify for a 160k loan this year, but know I could make the payments. Other bruised credit types include those with high incomes that are poorly organized and simply pay their bills late. My brother was like that. He had a good solid income (Engineer at Chrysler) yet had a poor credit score. Credit scores can be dramatically improved with a year of ontime payments and no more new credit lones established. These target buyers don't care about price. They are only interested in owner financing. They understand that they have created their credit problems and are willing to live with it but they still need a home to live in. They have two choices. 1) lease option or buy on land contract 2)Get a non-comforming mortgage from a finance company-these are typically very high interest rates that reflect the added risk. Ironically, it was pointed out yesterday at (a seminar that I attended) that at least 30% of lease option buyers would qualify for a conventional "A" loan, but they don't know it! I know several people right now that fall into that category. One guy that works for me didn't think he could borrow a penny. He checked with the bank and found out he qualifies for a 130k loan!blue
*Dawgger, question #4:If the buyers don't work hard and get their credit fixed, they might not be able to buy. As their option expires (remember it's only a year or so) they will have to make a choice. Move out, or renegotiate the option period. If they have been good tenants, it would be verly likely that the option period would be extended, with another small option fee and slight rent increase. If they have been lousy tenants, they probably won't be offered an extension. They then lose their option money and the house becomes available to sell again. Some investors have been known to set up the terms so that no one ever buys. They want to sell the option again and again and again. Other investors want the buyers to qualify. They are interested in the payoff at the closing. The speaker yesterday claimed that his tenants closed 30% of the time. Wendy Patton claimed a higher ratio (I think I already mentioned it-I don't remember the number).blue
*Dogger, I've given you a real life example of an overpriced property. But the investors are actually hunting down undervalued properties. Robert Sheemin won't buy one unless it is bought at 70% of Fair Market Value. He'll go a little higher (80%-it's risky though) on higher end property. He used to pass on anything higher than 60% of FMV. The idea is to buy property at "wholesale". Rmember this is a business. Buy at wholesale, sell at retail.Who sells at whoelsale? People with ugly houses, people that need to get out quick, people with creidit problems, divorced people, damaged houses, etc. The typical house might be a city 2br that has a FMV of 55k. If it is bought for 44k (80%) and sold for 60k on a Lease option, the investor has a 16k spread. Many investors will accept less spread. Wendy refuses anything less than 10K. That seems to be my threshold too. The method of finding these undervalued properties is the key to the biz. Every one has their own ways, but there are many ways. Cash call ads, flyers, signs, etc, all get the sellers to call you. Motivated sellers seek out buyers. The buyers are advertising "I buy houses for cash" but often resort to other creative offers such as a lease option. Mark Maupin (yesterday's speaker) uses signs and runs an ad every day in the Oakland Press. He's bought city lots at tax sales for $25 for the sole purpose of placing an I BUY HOUSES sign on it. He said that he's had one since 1986 and never paid a penny of tax on it...Houses are a fascinating business. There are an infinite number of ways to make money on them. Ironically, you don't need money to make money with them.... and the tax treatment is second to none in any other industry!blue
*Blue,Those are good answers. I guess if you have a qualified renter/lease purchaser lined up, you probably will do fine. I rent the house Karin and I used to live in. I hate being a landlord. One of my best friends loves it. But he's gotten SMOKED badly a few times. He's got more money to burn though, so it doesn't affect him too much. And he used to be a Madison cop-they burned him anyway!Can't wait to sell the rental house. Would you like to buy it?Dog
*Yes Dog I would. Actually, why don't you offer it up on a Lease Option yourself, to the existing tenant or a new one. Set a selling price at 110% of FMV and give a one year option. Get at least 3% option fee. Try for more. The best way to get more is to let prospects do a drive by, then call for contractual details. Make them speak first about how much "down payment" they have to work with. If you hate landording, then lease options is the ticket for you. You gain control of the house, without the headaches of being a landlord.Operating one unit is probably the toughest. If you have 20 units and one tenant moves out, your losing 5% of your gross income. Usually most people can absorb a 5% short term reduction. With 20 units or more, you usually can set up systems that get you better tenants.Heres a tip. Put your tenant on a bi-weekly payment schedule. If they are paying 400 per month, ask for 200 every two weeks. It'll be easier for them to make the rent, and you'll get an extra month each year. Mr Landlord actually charges $25 per month more for the privilege of getting paid in the bi-weekly system!blue
*Blue,I sense you are sort of trying to beat the system, or sort of cheat the renters. What goes around can come around...MD
*Dog, I'm trying to create a system. Cheat anyone? Don't need to. Work the corners for profit? Yep.blue
*Jon...maybe a welder could be used....I know electrostatic painting is used in industry....web search time...near the stream,aj
*http://www.sedco.co.uk/pages/2k_and_electrostatic.htmjust found ...near the stream,aj
*
Thanks blue for saving us the 3k...
near the stream with a listening ear,
aj