First Deal A Lease Option - Posted by Craig(SoMD)

Real Estate Investing
1

Posted by jeff on October 28, 2002 at 15:17:39:

make sure you get that last 800 put into a promissory note or some kind of written proof. id also make sure it is seperated from the lease agreement with no referrals between the two. if they default on the lease you can still go after them for the note. they may not pay, but atleast you can get a judgement against them in case they acquire anything material in the next 15 years (KY is 15 years with 12% interest, i have no clue about your area). they may not pay it, but atleast they cant claim it to be part of the lease and try to just use the eviction as your only security for the payments.

if theyd paid up front like they were supposed to, it wouldnt be cured and repaid simply by an eviction, dont let them do the payments that way either.

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First Deal A Lease Option - Posted by Craig(SoMD)

Posted by Craig(SoMD) on October 26, 2002 at 21:41:36:

This has been totally amazing.

A week ago Thursday I wrapped up a lease option deal with an owner. They had been trying to sell a 3-1.5 TH former rental with a realtor for the last four months. They were asking $89,500 and other comps in the area were running $10,000 to $15,000 more. The realtor really wasn’t working that hard and they had no serious offers. Since the property had been a rental, I didn’t see that it would be that hard to turn it into a lease option. The payment they have is $722/mo on an ARM(incl. tax & ins), and they have about $11,000 in equity.

The deal I made is that I would make their payments(adjusting with the ARM if necessary). I would give them one payment(kinda like a security deposit) once I have a tenant buyer in the house. I agreed to pay half the payment Nov. 1 and pick up payments on Dec. 1. I offered them full price of $90,000, on a 12 month lease renewable for up to 4 additional terms. On the surface, there appear to be some good things and some bad things that I have done so far, but wait until you see the results. Not a dime of cash left my pocket, and they gave me the keys and control of this property for up to five years.

The local paper comes out twice a week, and I got my ad in the next paper, this past Wednesday. My phone rang off the hook, with probably thirty or so people looking exactly for what I’ve got. Hey, I have a great list now. Anyway, a young couple was really interested. They made sure to meet me the first chance I had to be there Friday afternoon. They came with cash. They loved the house. They were talking about how they wanted to decorate.

Here’s the deal. $120,000 purchase price within two years. $900 per month lease price. $3000 non-refundible option consideration, $300 on the spot, $1900 in 5 days, and $800 paid over the next eight months.

So I’ll end up with some cash up front, $178 monthly cashflow, and $30,000 in my pocket when this deal closes sometime in the next two years. All that and it was still a win for the seller, and a win for the tenant buyer. Now this is a great business.

Craig
Southern Maryland

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Re: First Deal A Lease Option - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on October 28, 2002 at 16:29:04:

Craig–(MD)------------------

Contratulations on what sounds like a good deal to me. And even if these leasee/optionees flake out, it sounds like you can still get the deal out the door (so to speak) to somebody else.

I like that they brought cash with them. When you are going to give them the key be sure that they pay you that same way. NO KEYS FOR PERSONAL CHECKS. Rule #16 of the landlords trouble-evading manual.

Good InvestingRon Starr***

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What happened to the Realtor? - Posted by TCR_Va

Posted by TCR_Va on October 28, 2002 at 02:17:39:

Craig,

What happened to the Realtor? Did you set the deal up so that the original seller(s) paid him/her commission? Or was it an expired listing you got a hold of?

5

Re: First Deal A Lease Option - Posted by Dave B

Posted by Dave B on October 27, 2002 at 08:52:10:

Congratulations on your deal! It looks pretty good. If I may, I’d like to point out some things that may affect the deal to keep in mind.

As Jeff points out, it is not a good idea to take the option deposit in payments. I too used to do this and believe it or not, got burned EVERY SINGLE TIME I did it. Do NOT give these people possession of the property for an amount that is even less than a security deposit ($300), PLEASE!!! DO NOT let them move in until you at lease get that additional $1,900!

The other problem I see is that if $90,000 is full retail value of the property today, why would you assume the property will appreciate $30,000 in 2 years? Is it in an area where this is common? That is a BIG jump in value and if that does not happen, your tenant/buyers will be stuck in a position where no lender will finance them for the amount that they will need at the end of 2 years.

Just some points to bear in mind. I do not fault you for this deal because you, unlike the vast majority of people who read boards like this and courses yet never do anything, took action. That is a good thing. Expect to make some mistakes in the beginning. You’ve got some lessons coming, but you need that experience. I do still congratulate you on your deal and sincerely hope it works out for you.

Now get out there and sign up another one!

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Re: First Deal A Lease Option - Posted by jeff

Posted by jeff on October 27, 2002 at 05:55:38:

the only problem i see is the consideration money being paid in payments. ive heard some horror sotries about this arrangements but ive never personally given it a shot. i want my cash in hand or no deal. atleast tell me you havent actually signed anything on a $300 down? you are waitiing till you get the 1,900 aint you? i wish you all the best luck. you may have found smoe people that will actually not give you any trouble over the cash, but ive heard that this arrangment can go downhill quick.

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Re: What happened to the Realtor? - Posted by Craig (SoMD)

Posted by Craig (SoMD) on October 29, 2002 at 10:56:04:

When the seller first called me(off my ad), his contract with his agent was due to expire within the week. I told him to call me back once the contract was expired and I would work out something to buy his property. So the realtor was out of the picture. Actually, since the property was a rental before, the realtor really wouldn’t be concerned that it was going back to a rental.

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BTW - Congrats!!! - Posted by TCR_Va

Posted by TCR_Va on October 28, 2002 at 02:18:26:

(nt)

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Re: First Deal A Lease Option - Posted by Craig (SoMD)

Posted by Craig (SoMD) on October 27, 2002 at 22:47:07:

They won’t take possession until I have the $1900 and the $900 first month’s rent.

Full retail value is in the $109,000 range for this property. There were other houses moving in this range, but this guy’s realtor was useless.

If a bank won’t finance the full value, I am not that worried about it, because I will. And if I am working to establish the financing and the deal, it will be completely seamless to the buyer. Like I said earlier, not perfect, but I would like a few more of these!!!

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Re: First Deal A Lease Option - Posted by jeff

Posted by jeff on October 27, 2002 at 11:11:10:

in a couple of years when the option comes due, if the appreciation hasnt happened to cover the increase and they cant come up with the extra in cash, yuo cuold always decrease the purchase price in order to get the sale done. itll mean less cash-out on the end, but if the numkbers are still there, thatd be my exit.

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Re: First Deal A Lease Option - Posted by Craig(SoMD)

Posted by Craig(SoMD) on October 27, 2002 at 22:33:18:

I have the $300 and the $1900 written into the contract as up-front money, and they will not get the keys, or move in, until they give me that and first month’s rent of $900. They are actually not moving in for several weeks. Yes, I am taking the last $800 Option Consideration in payments, and there is risk there, but I’ll deal with that as it comes.