Structuring the deal... - Posted by Tom -- IN

Posted by Becky IL on July 25, 2001 at 12:38:10:

Mike, you hit it on the mark and this is what I was suggesting, however, my point was that you put in writing right on the Option Agreement the subject to terms, so there is no misunderstanding later that you are not buying these houses for cash. The L/O I was referring to is your exit plan, which is to L/O to your tenant/buyer.

Structuring the deal… - Posted by Tom – IN

Posted by Tom – IN on July 25, 2001 at 09:11:42:

Got a call from a new landlord last week, after she saw MY signs on HER workers truck. (My gosh, how did that happen, grin?) She recently bought out a bunch of houses from the bigest landlord in town, probably 20 to 50 houses, and has finally figured out that she’s in way over her head, and that she paid way too much for these houses. She’s willing to do subject to, or anything else, for that matter. I put her to work making me up a list of houses, the balance, the interest rate, etc.
My tentative plan is to get the list, then make her an offer to get a one year option to buy each of those house, each under a separate deal. She would continue to rent them now, but would do no long term leases on them. I’d put them up for sale under L/O and have her make probably two payments after I take possession. I’ll put a short ad in the paper for a couple of months, and put a sign in the yard on each house. After I collect the 3% to 5% deposit on a house, I’d have her give the tenants 30 to vacate, then paint and put in my new t/b. Sub To would be the usual deal with a trust.
Any thoughts?\

Re: Structuring the deal… - Posted by Michael

Posted by Michael on July 25, 2001 at 10:34:52:

I would only get a option on the homes if I intended to flip these properties, not lease option them. With only a one year option you are putting pressure on yourself to find quality tenant buyers that can qualify for new home loans in less than a year. Will the seller let you extend your option if needed?
Since you already said that the seller would DEED you the properties, that’s what I would go for. That way you are free to sell the home any way you choose.

Have a good one!

Michael, KY.

Re: Structuring the deal… - Posted by Becky IL

Posted by Becky IL on July 25, 2001 at 11:34:32:

I agree with Michael that you should get the deed as opposed to doing a L/O, but you can put those terms on your Option agreement. So before you do any Option contract, decide how you’re going to buy (I suggest taking them subject to if you can) and how much total price and what your payments will be, and then draw up an Option agreement outlining all these terms. Then when you’re ready to take advantage of your Option, all the terms are already agreed upon (just as you would in a Purchase Agreement) and you are ready to close.

However, I do have a couple of other points here. You do need to feel out the other investor’s level of motivation here to negotiate these deals. I know if I were selling these properties, I would not want them tied up under an Option agreement for a whole year because I might find another buyer in that time. So you may have to agree to allow them to sell during your Option term if they find a buyer before you exercise your Option or make it a shorter term. Honestly, you shouldn’t need more than a couple of months at most if you are looking for a tenant/buyer to L/O from you.Usually this can be accomplished in a couple of weeks, but of course you want more time than you need.

Re: Structuring the deal… - Posted by Tom – IN

Posted by Tom – IN on July 25, 2001 at 12:08:31:

Maybe I didn’t explain my intentions right the first time.
Step one is to get an option from her which will allow me to buy each of these houses from her. In the meantime, she keeps each of these houses in her rental inventory.
Step two is to start advertising all these houses for “Rent to Own”.
Step three. When I find a buyer for a particular house, I collect the “non-refundable-option-fee” from the t/b and tell him he can move in in approximately 60 days.
Step four. I buy this house from the seller at this time on SubTo and get the deed. Seller makes next two payments while she evicts the tenant, and then I go in and paint.
Michael suggested that I do a SubTo, rather than a lease option. That was my original intent. An option, but not a lease option, to tie up all the properties while I try to market them. Then buy each one individualy on SubTo once I have a t/b for it.
I do agree with Becky that I may have to let her sell to someone else. But if I’m doing to do all the marketing, I want the sale.
But, I don’t have enough cash reserves to go in and take 20 houses off her hands the first day and then go looking for t/b’s. But I want to write one overall option agreement which will let me do the same thing to each house in turn.
Any more ideas?
And thanks, guys. I really appreciate it.