Rentals & L/O In An Uncertain Economy

I am doing Co-op or wholesale L/Os.

They are much safer.

With these you sell your contract to the Tenant/Buyer and you are not responsible for that monthly pmt. You get the option pmt up front and you are out.

Much less risk.

Hey Allison,

I think buying and holding is a great strategy right now for those who can do it. And as long as you're purchasing at a good 20% or more below the current value of the home and there is decent cash flow, it wont be a huge deal if the market drops more because you would already have that cushion. For buy and hold, maybe you could focus on economically diverse areas where there are lots of strong business that can withstand these tough times. Buying and holding in economically diverse areas ensures that area isn't dependent on one business. My town is home of the Boeing plant and we're about 20 minutes north of Seattle. We are HEAVILY dependent on Boeing for jobs and it's been pretty unpredictable over the past 10 yrs with layoffs and talks of moving the plant. For this reason I most likely wouldn't buy and hold here.

As for Sandwich Lease options, I think that's a PHENOMINAL strategy to use right now. You're right about some of the risk, but there are ways to drastically minimize the risk...

1) What would happen if I was in a sandwich lease option paying down someone's mortgage and the tenant buyer I have loses their job and can't pay their monthly payments? ANSWER - Send out the Eviction notice ASAP!! If L/O's are in demand in your area like you say they are, then it shouldn't be a problem filling that vacancy. When you pre-screen your tenant you can make sure they've had steady employment history and make this one of your requiremts. Additionally, it's also good to keep the option fee and any cashflow from the rent in reserves on the first couple deals in case you do have to pay for a month or 2 of vacancies. Don't go out and buy a new flat screen as soon as you pocket that option fee. Be smart with it.

2) Is there a clause I don't know about to protect me? ANSWER - You can put in a clause that says "Buyer has right to terminate agreement with 3 months notice," or something along those lines. That way if you really can't secure another tenant for some reason, then you have a way out.

Although your questions are good ones to pose, this market is toooo good for the "What ifs." Go Make it Happen!!!

Hope this helps

Jordan

Thank you for your feedback.
Karen i just met domeone last night at my REI club meeting who wholesales L/O's. I never thought of doing that before. But it's something I definitely want to look into.
Jordan thank ou for the CYA info. I love hearing about ways to cover myself. I think that's the biggest reason I haven't completed a deal yet. I'm sacared of getting myself into a bad position that I can't get out of.

Everyone else keep the advice coming!

Hey Allison,

Yes you ALWAYS CYA at all cost and protect yourself to the maximum extent. I'm not in NY of course, so you do have to adhere to landlord/tenant guidelines and exforcements and RE laws per your state.

You are leasing with the option to purchase. same on the backend with your tenant buyer in the sandwich. Bottom line you are a tenant, you don't pay the owner gets to evict but you may forfeit your option fee.

Relax, have a RE attorney write and/or review your contracts. It may cost you $250-500 (or whatever your typical legal fees run in your state), but if it gives you the confidence and peace of mind to move forward.....I'd say it was an investment well spent. Then you'll have the contracts, pay for it once and get multiple returns everytime you use them.
(express your concerns to him and allow him to address if applicable in your contacts)

As far a your market analysis and rental concerns. Every area is unique. Yes, there are some areas that don't cashflow well. Those use as Karen mentioned the co-op/wholesale LO strategy. Basically you're matching buyers/sellers based on a monthly payment and collecting a fee on the front end.

There will be demand for buyer assistance programs for quite a while, In my opinion.

Be hard on the problem and easy on the people. There is always a demand for problem solvers!

God bless,
Jen

I agree with Karen. Wholesale lease options are the best bet to cover yourself while starting out. It's basically, "get in, get out, get paid".

Just make sure you are contracting to "rent to buy" between the seller & you first (& approach the seller in that way). You need to do that so you become a principal in the transaction. Otherwise you would be brokering without a license.

I also disclose to the seller that I will be selling my principal position in the contract to a tenant buyer. That way it's all clean.

JvM

I beleive L/O will be come very strong over the next couple of years, The market is very slow, after the stockmarket lose's over the last few days, you shold see more monies coming into the market also, banks aren't making Loans there sitting on the side lines tring to get rid of of all there REO's and theres more in the pipe line, then you have the world markets having a neg effect on or banks, there's still to much debt out there, I beleive this down market is here for at least three manybe four years, sellers out there of our tring to sell in this market are finding out everyday that the solotion for now is to L/O there property, and move on, there are people out there wanting to rent to own a home who have money to put down and make it happen, a win-win for seller a win-win for buyer and win-win for you to put these deal together.....

Thanks everyone! I'd love to hear more! keep it coming! I know I'm no the only one here who can benefit from this info!