Thinking Out Of The Box with Lease Options

Here is a thread that I started that will give you LOTS of info on L/Os.

You can also go to WendyPatton.com and click on her articles and she explains all the different types of L/Os. Wholesale and Co-op L/Os are one and the same.

http://www.deangraziosi.com/real-estate-forums/everything-else/71370/lea...

Karen

Thanks for the link. I have it bookmarked. Can you tell me if you have ever heard selling the L/O deals for a percentage of the ending sale profit?

Everything is negotiable.

Everything is negotiable.

I think that you are a little confused as to how a sandwich L/O works. If you make the contract assignable in the first place (which is what you want to do-even if you decide to live there, you always have the option), then you don't need another investor. ??? Why would you want one?

You need to read this stuff that I referred you to. Then you will GET it!

This business is MOSTLY having to learn what you are doing YOURSELF and not expect to just have the easy way out and us tell you what to do step by step. We are here to help but you have to be willing to help yourself.

Many deals are "created" and if you don't thoroughly understand the whole concept, you cannot think outside the box to create them, so many will fall by the wayside. You probably think I am being a real witch here but I am actually doing you a HUGE favor. The question you are asking actually has a very basic solution. That is how I know you need to study this concept more. You don't want to get you, the seller or the buyer into a mess!

Karen

The only problem with trying to sell the back end profit of a lease option is that it is risky from the investors standpoint. Since only about 50% of lease options get exercised, the investor is rolling the dice on whether the TB will exercise the option or not. If you had a $10,000 back end profit on a 5 year L/O deal with your seller, and a 2 year deal with your TB, you might find an investor who would give you $5,000 for the back end under the stipulation that if the TB doesn't exercise the option after 2 years, the investor gets to take over the remaining 3 years of the L/O agreement with your seller. That way he can get a new TB in for the remaining 3 years and collect the option money to recoup his loss. You might also find an investor who would be willing to pay you a lump sum of cash for the right to collect the lease payments. Say for instance you had a $300/mo cash flow and wanted cash today. An investor who would be satisfied with an 18% yield would give you about $6,000 today for the right to collect the $300 cash flow for the next 24 months. You would have to personally guarantee the lease payments though. Or you might find an investor who would give you $10,000 for the whole 5 year contract. The thing you have to realize is, the back end doesn't have much value for the investor since it is dependent on the TB exercising the option. The monthly cash flow carries less risk than the back end profit for the investor, so they will pay accordingly. So if you could find an investor to give you $10k for the 5 year deal, it would be like getting the back end profit today but sacrificing the monthly cash flow. So you could collect $10k for the option, sell the contract to an investor for $10k, and be in and out of the deal with a nice profit locked in. The investor, if the option is exercised, profits $7200 on his $10k investment with the added security of 3 years left on the contract if the TB doesn't exercise the option. Not your everyday deal, but the title of your post was "Thinking outside the box". As I said, everything is negotiable.

Kareng,
Thanks for your direct advice and I did not take your response personal nor am I judging you in any manner. I understand that things will become very clear as I grow. I am only trying to get slightly more than a vague answer to the question. I will read and re-read the information that you have directed me to. I also understand that each deal will usually be slightly too completely different from the previous, but similar concepts. What I am trying to establish is if the strategy that I asked about is a used strategy and maybe some typical exit strategies. I want to make sure that I have the right mindset when trying to create deals. Thanks for your response and I will begin to study the information that you have directed me too.
Thanks!

TRSD,
Thanks for your detailed response and I was thinking of doing it exactly the way you explained. The reason that I was looking into this way was to create large sums of money to help me financially and then after a while, I plan to keep the properties for all of the streams of income. This is what I had in mind using your numbers:
L/O 5yr from seller Purchased for $100,000 $600 mo.
L/O 2yr TB Sell to for $130,000 $900 mo.
Option fee to me $5000
L/O to TB Total Sale $125,000
Profit If Option Exercised $25,000 $300 mo.
Over 2yrs $7,200 total

Sell the whole deal to investor for 50% of the amount if exercised for a total of $12,500

The advantages for the Investor:
- would receive a deal that is already structured - No leg work
- will have the ability to recoup loss in slightly less than 41 mos. (about 3.5)
- If occupied for 5 full years (total received from monthly is $18,000 - $12,500 = $5500 profit with L/O can be extended
- If option is exercised after the first 2 yrs = $25,000 - $12,500 = $12,500 profit
- If a 2nd Option is created and exercised Same Price on everything to keep it simple
o New down payment $5000
o New monthly payments $300mo. = total for 2 years $7,200
o If exercised $25,000

- Total Deal after 4yrs:
o Paid $12,500 for whole deal
o Collected $7,200 for first TB
o Received $5000 from 2nd TB for Option fee
o Collect $7,200 for 2 yrs of payments
o If Option exercised collect $25,000
 $44,400 - $12,500 = $31,900 (initial investment)
 Total Profit $31,900 if 2nd TB exercises option

Would this structure makes sense to an investor or not likely? Why? Am I missing something?