OfflineTo all of you lease options kings and queens, I need some help and some advice on these. When you go to sign a lease option agreement with a seller, what are the main objections you may overcome and what is your response to those questions? I had one last night, and the dad asked about 10 thousand questions that some of them I had never really gave thought to. He was very well prepared, and since it was my first possible lease option deal, I was going in there with knowledge, but no experience on how to actually put together a deal. Knowledge is excellent, but having knowledge and experience is a whole different ball game. Here's the deal: I was going to take over this lady's payments with no money down on the property. I was then going to lease it back out to a retail buyer for about 15K more than what I purhcased the house for and then up the monthly payment by 200.00 to create a positive cash flow situation for me. I have a waiting list of retail buyers that have been checked out that have filled out our application and have gone through the screening process. This house was in decent condition, and had 5 bedrooms 3 bathrooms. The price tag on the house that I was going to pay for was 73,203.85 which was what was the remainder on the house mortgage. However, her father had asked many questions I had not thought of, and since I haven't been in business for long, he talked his daugter out of doing the deal. So now she is stuck with a house that she doesnt want and doesn't need. I am a very very new newbie, and I have never done a lease option. I am just putting together my first wholesale assignment. If anyone can tell me how to put together a lease option deal with overcoming objections, putting together escrow..etc. etc. I would be ever so grateful. Thanks for helping out a newbie!!! Destrie
Destrie
Failure Is Not An Option
What is the FMV of the house? You said decent condition, does that mean it needs repairs? Why are they selling? What were some of the questions you couldn't ask? Why not do owner financing instead of lease option? You sound like you have several possibilities here, but we need more information.
KimmyJ
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The FMV is around 80k. The house needs updating, but as far as the structure of the house is in good condition. The house is on the historical list (newbie here don't know if that's anything good or not). The reason why the owner is selling is because she bought the house for her and her boyfriend. They would have had 4 kids between the two. They broke up, and now she is stuck in a small town and is tired of commuting so she basically wants out of the home. So, her father was there, and he wanted to make sure that I would make the payments on time, and I reassured him as a business aspect that we would lose money on the house if we didn't make the payments. I was going to keep her name on the home (I have bad credit due to an ex husband). It needs probably around 5k in repairs (a few holes in the walls that need patched and new carpet) nothing big. I am extremely new to this, so I don't even know what all of my options would be for this besides doing a sandwich lease option. My phone is ringing off the hook and right now my brain is stuck in the wholesale end of the deal and lease options.
Destrie
Failure Is Not An Option
Okay, the house's ARV is 80k and they owe 73k. How much is their mortgage payments and does it include taxes and insurance in the payment? And what are rents going for in the area?
KimmyJ
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Their payments are $562.00 and yes it includes taxes and insurance. The rents for the area are anywhere from 400.00 for a 1 bedroom to 900.00 for a nice 3 bedroom 2 bath house. I live in the town where the house is located, and the town has aroun 1500 people, (not a typo 1,500...lol) with zero crime rate, a manufactoring company, 3 restaurants, 1 bar, 1 grocery store, 1 gas station, 1 policeman, 1 police station. The house is 2 blocks from the school, and 3 blocks from the city park and pool.
I want to thank you so much KimmyJ for helping me out on this.
Destrie
Destrie
Failure Is Not An Option
think you can rent it out? I mean out of the 1500 people are there people looking to rent a 3/2 dated house?
KimmyJ
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I know of six people that work at the plant that would love to live in Sheffield. The thing is that renters are not hard to find for this area, it's the buyers. I have a few that would be interested in buying it on contract or lease w/ option. I feel that the numbers are too close together and if the housing market drops, then I dont want to be stuck with the house. I would love to assign this property, but 72k is too much. I feel that I'm letting alot of my sellers slip through my fingers without me even realizing it. Destrie
Destrie
Failure Is Not An Option
Are they desperate? Your only option is to get the deed subject to the existing loan. Tell them that is their only option because of what they owe compared to FMV. Have them give you their payment book and you make the payments every month. You could do a 5 year plan. This way you can do a lease option with your tenant or you could do owner financing with your tenant. Give them about 2 years to get the financing to purchase you out right and then you pay the loan off. You will get some money up front and a bigger pay off in a few years.
KimmyJ
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Let me see if I understood you when you explained the Lease/Option. Destrie, is going to do a "Subject To" on the L/O form, and that takes the Deed off the Seller's hands? Does that Lease/Option form go to the mortgage company, or Title Company? If Destrie, is buying this house with no money, where is she going to borrow the money from since she has bad credit, because a HML won't loan with bad credit.....Can you explain in simple form & giving an example of how this process should take place, thanks for your clarity.
Everyone Can Make A Difference!
John A.
No, when doing L/O what I do is negotiate to with the seller I will take over existing payments for a period of time (usually 2-5 years) I then turn around and either rent it out or do a lease option with the retail buyer.
Destrie
Destrie
Failure Is Not An Option
Hi I hope you don't mind if I follow this posting conversation. My concern is how are you going to handle the payments? Are you going to send the payments in yourself or have your attorney handle the payments? When doing a lease option with the Seller are you allowed to carry a homeowner's insurance policy on that property to cover your interests?
"I will NOT BE BROKE! ANYMORE!"
In the name of Allah, the Beneficent,
the Merciful.
22.He is Allah besides Whom there is no God: The Knower of the unseen and the seen; He is the Beneficent, the Merciful.
23. He is Allah besides Whom there is no God: the King, the Holy, the Author of Peace,the Granter of Security, Guardian over all, the Mighty, the Supreme, the Possessor of greatness. Glory be to Allah from that which they set up (with Him)!
24. He is Allah: the Creator, the Maker, the Fashioner: His are the most beautiful names. Whatever is in the heavens and the earth declares His glory: and He is the Mighty, the Wise.
No, I don't mind at all. How I handle the payments is that I set up a bank account and have the pmts. automatically deducted from that account. That way there is a paper trail that I can show the seller that payments are being made on the property if there is ever a question/problem.
Destrie
Destrie
Failure Is Not An Option
Lease/Option and getting the deed subject to are two different things. You either do one or the other. Lease/Option is where you lease the property with the option to purchase it at specified time, if you choose to exercise your option. If you don't exercise your option then you can walk away from the house with no strings attached. The seller remains/holds the deed.
In a subject to deal, destrie is going to take over the payments of the house and get control of the property via warranty deed. The idea is to get the seller's payment book and you just continue making the payments yourself. If the seller won't go that route then I would set up a 3rd party account (escrow company) and have the escrow company make all the payments and keep track of the paperwork. You pay escrow and escrow makes all the payments. You don't want your seller taking your payments and then using the money for something else and then find the house in default. The great thing about subject to is that you don't have to qualify for a loan and if you default the seller is in trouble not you because your name is not on the loan. Just make sure you have the seller and whoever is going to purchase the house from you sign a CYA letter stating that they understand that there may be a due on sale clause and that you have no intention of assuming the loan, etc. You will need an attorney to draft something for you.
Hope this helps...
KimmyJ
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That was a great explanation....Thanks!!
Destrie
Destrie
Failure Is Not An Option
If you're taking over the L/O your not paying out of your pocket the payments, correct? Don't you have to get a renter to move in & than pay the reminding of the payments & you do a L/O with that renter?
Everyone Can Make A Difference!
John A.
What I would do is set the payments up for 30 days after I sign the lease. That leaves me 30 days to get a retail buyer into the property. Right now I have a waiting list of buyers that are waiting to get into one of the properties. If none of those want it, I make bandit signs up that states something to the effect of "House for Sale or Rent To Own 3/2/2 Call" and then put my number on there.
When they call, I then ask how much they have to put down on the property, and then I send them the application to fill out if they have enough money to put down on the house. I have to make sure that the payments would fit into their budget, so I have them list all of their bills and monthly income.
Also, do a l/o for around 3 years with my seller, and then turn around and do the l/o for 2.6 years with the buyer and always let them know they can exercise their option to buy anytime.
Destrie
Failure Is Not An Option
So a Lease Option you would do when the Seller isn't in any financial distress vices Subject To you would use that when the Seller is in financial distress i.e. miss payments, job loss. I feel more comfortable going the route of having an escrow company or attorney send in their payments verses trusting the Seller, whether they're in financial distress or not, with making the payments. KimmyJ, I had ask you the question earlier in another thread post, how to avoid activating the Due on Sale clause. What other scenarios could cause the Lender to call the mortgage due? If they've miss payments, how much ($$) is the Lender usually wanting upfront from the Seller to reinstate their loan?
"I will NOT BE BROKE! ANYMORE!"
In the name of Allah, the Beneficent,
the Merciful.
22.He is Allah besides Whom there is no God: The Knower of the unseen and the seen; He is the Beneficent, the Merciful.
23. He is Allah besides Whom there is no God: the King, the Holy, the Author of Peace,the Granter of Security, Guardian over all, the Mighty, the Supreme, the Possessor of greatness. Glory be to Allah from that which they set up (with Him)!
24. He is Allah: the Creator, the Maker, the Fashioner: His are the most beautiful names. Whatever is in the heavens and the earth declares His glory: and He is the Mighty, the Wise.
I like the idea of having the Escrow hold the payments & not the seller. So the seller is still living in the house, but I thought that in Destrie case the seller wanted to move?
So when your doing "Subject To" your not actually getting the actual deed of the property, just a warranty, that just shows the time period? Let me know if I'm understanding this correctly...thanks for your help.
Everyone Can Make A Difference!
John A.
I'm confuse, when would you get a Lender involved on a L/O or Subject To? Your not buying the property so you don't need to borrow any money...can you explain
Everyone Can Make A Difference!
John A.
No you probably misunderstood my question. The lender wouldn't be involve with the L/O or Subject To that you're doing between you and the Seller. I'm asking ?s trying find ways of avoiding having the Lender call the mortgage due because even though you're name isn't on the Original loan with the seller. I'm not certain how often the Lender checks the deed to the property to see if the original owner who has a mortgage with them is still listed on the Deed at the courthouse. Are you following me now?
Everyone Can Make A Difference!
John A.
"I will NOT BE BROKE! ANYMORE!"
In the name of Allah, the Beneficent,
the Merciful.
22.He is Allah besides Whom there is no God: The Knower of the unseen and the seen; He is the Beneficent, the Merciful.
23. He is Allah besides Whom there is no God: the King, the Holy, the Author of Peace,the Granter of Security, Guardian over all, the Mighty, the Supreme, the Possessor of greatness. Glory be to Allah from that which they set up (with Him)!
24. He is Allah: the Creator, the Maker, the Fashioner: His are the most beautiful names. Whatever is in the heavens and the earth declares His glory: and He is the Mighty, the Wise.
You are buying the property when you exercise your option. Basically, it's easier to get financing when doing a l/o because the monoey you have applied towards the purchase of the house is essentially your down payment. The tenants has now a history of good payments, and a portion of those payments will be towards the purchase of the house. So, if they paid rent on time for 2 years, you have around 10 K or more for the purchase price of the home. After they exercise the option, they go to a broker, get financing, and get the house. If after the 2 years they decide not to option, you can either let them rent the house, or have them move. Then the process starts all over again. If I wanted to exercise my option, it's the same principle.
Destrie
Failure Is Not An Option
Is the Lender your referring to as the mortgage company, if it is then I rest my case
Everyone Can Make A Difference!
John A.
How does the deal work when you're doing a Sandwich Lease? Like you lease option the property from the Seller than you turn around and sell or lease option that contract to buyer and they decide to exercise their option. How do you avoid the embarrassment if the buyer decides at the last moment they want to back out of the purchase contract since you have no intention of using your credit to obtain a loan yourself to purchase the property?
"I will NOT BE BROKE! ANYMORE!"
In the name of Allah, the Beneficent,
the Merciful.
22.He is Allah besides Whom there is no God: The Knower of the unseen and the seen; He is the Beneficent, the Merciful.
23. He is Allah besides Whom there is no God: the King, the Holy, the Author of Peace,the Granter of Security, Guardian over all, the Mighty, the Supreme, the Possessor of greatness. Glory be to Allah from that which they set up (with Him)!
24. He is Allah: the Creator, the Maker, the Fashioner: His are the most beautiful names. Whatever is in the heavens and the earth declares His glory: and He is the Mighty, the Wise.
the Seller's mortgage company I apologize if I confuse you if as though I was referring to a whole new Lender.
Everyone Can Make A Difference!
John A.
"I will NOT BE BROKE! ANYMORE!"
In the name of Allah, the Beneficent,
the Merciful.
22.He is Allah besides Whom there is no God: The Knower of the unseen and the seen; He is the Beneficent, the Merciful.
23. He is Allah besides Whom there is no God: the King, the Holy, the Author of Peace,the Granter of Security, Guardian over all, the Mighty, the Supreme, the Possessor of greatness. Glory be to Allah from that which they set up (with Him)!
24. He is Allah: the Creator, the Maker, the Fashioner: His are the most beautiful names. Whatever is in the heavens and the earth declares His glory: and He is the Mighty, the Wise.
Then I would either purchase it myself OR, find another buyer and do the same process over again. I always let my sellers know that after 2-5 years that could happen, but the buyers would be out alot of dough if they decided to back out. With their 6-10 K option money down, and @ 700-900 per month for 36 months if not more, that would be stupid of them. They would be paying for all repairs on the property themselves as well, so take that into account.
Destrie
Failure Is Not An Option
By doing the L/O isn't the renter going to move in to the house right away and the seller has to move out? You're name is not in the payments coming just the renters, correct? So how many years are you signing with the seller to purchase the house? If your doing a 2-year L/O with a renter?
Everyone Can Make A Difference!
John A.
Destrie, you really shouldn't be doing any kind of lease option unless you can get the house at 75% of the FMV. It is a much better deal for you to get the deed subject to and then sell it on owner financing. You will get a larger down payment on the front end, you can charge interest and then you should have a nice back end profit when you sell. This is just how I keep myself safe and out of trouble in doing deals.
KimmyJ
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I have one that I'm going to do tomorrow. They will be out of the house in 3 weeks, and so I will date the contract on the day that they move out. You have to make your agreement for a longer period of time than that of your buyers.
Destrie
Failure Is Not An Option
Opening the case again...why would a new lender coming into the picture when theirs already a Lender in place from the seller?
Everyone Can Make A Difference!
John A.
you would go with the lender that approved the loan when they exercised the option. From what I understand is that you could do a refi with either the exisiting lender or from a different lender.
Destrie
Failure Is Not An Option
KimmyJ
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If you don't mind giving an example of this response, thanks!
Everyone Can Make A Difference!
John A.