How can I ensure that the seller will move out on this l/o deal - Posted by Tarun_md

Posted by Tarun_md on May 30, 2000 at 16:47:47:

Thanks to your advise, I did go back to the tenant/buyers on this deal and renegotiate a higher option consideration of 7k. They will give me $5500 plus 1st months rent before move in and the rest in the course of 3 months. I still don’t like the idea of not getting any cash flow. I guess I’ll take a chance, especially when I am getting 7k upfront.

How can I ensure that the seller will move out on this l/o deal - Posted by Tarun_md

Posted by Tarun_md on May 28, 2000 at 20:16:27:

I am in a somewhat awkward situation in this deal.
I have a house under contract on a lease option for 243k with payments of 2295/month(less than what the seller is paying for PITI). The seller agreed to pay the difference of $57 dollars/month out of his pocket.
After advertising, I found a tenant buyer who will purchase the house from me for 260k(house is not worth more than 250k at this point) and give me 5k option consideration with a payment of $2295/month(no cash flow for me).
The problem is that the seller is still living in the house and does not have a place to move to. They agreed to do the lease option because they can’t afford $2300+ for the monthly payments. Moreover, the seller’s credit is bad. They have late payments, and 1 car repossession on their credit report. Our contract says that they will move out within a month of me procuring a subtenant/buyer. I am concerned that they might not be able to find a house to rent because of their bad credit.
In the mean time, I cannot give a definite move in date to the t/bers I found. The t/bers want to move in around the end of july(I still have 2 months). I really wanted to assign this deal and be out of it, but the sellers insist that I stay in the middle.
What should I do in this situation?

Re: How can I ensure that the seller will move out on this l/o deal - Posted by Soraya(SanDiego)

Posted by Soraya(SanDiego) on May 29, 2000 at 10:26:58:

Besides the $5K you are getting from the buyer are you getting a security deposit of at least $2300?

The rule of thumb is to get at least 3% up front option consideration (your tenant buyer may be in the deal a little light. Can you re-negotiate with him/her? example: have tenant buyer pay $5K up front and $4K over the next few months.)

Your contract with the tenant buyer should also read:

Landlord shall endeavor to deliver possession to Tenants by the commencement date of this Agreement. If Landlord is unable to deliver possession of the premises within seven days of the commencement date stated in paragraph 1 above, then this contract may be terminated at the Landlords option and all funds received from Tenant will be returned. Tenant agrees to hold Landlord/Agent harmless for any further obligations and or consequential damages.

With a $243K house you should be able to l/o to a tenant buyer (optionee) for $270K -$275K . Usually the tenant buyer is not too concerned about the purchase price; they are more concerned about the monthly payments.

Be sure to buy the property in a corp name or a land trust without you having any liability. With your agreement, you have a high risk for the amount of potential profit.


Re: How can I ensure that the seller will move out on this l/o deal - Posted by chris

Posted by chris on May 28, 2000 at 22:38:46:


A suggestion would be to have a contingency clause from the seller that they will pay you rent after a certain date as well as a contingency clause with the buyer that the deal depends on the property being vacant(seller moves out). You will need to keep in contact with both sides to keep this on course. I would try to get this seller in touch with a good mortgage broker. This seller sounds paralyzed about their situation and may be reluctant to go to see a lender. Some hand holding from you may be in order.

That’s what comes to mind now.


Re: How can I ensure that the seller will move out on this l/o deal - Posted by JPiper

Posted by JPiper on May 28, 2000 at 22:36:43:

Not to be facetious…but I’d be hoping the seller didn’t move, so that I wouldn’t be in the “middle” of this deal!

You’re going to guarantee a payment of $2295 in return for $5K upfront and no cashflow?? Yikes…where’s the deal? You’re taking a risk that would be totally unacceptable to me.

I’d either assign the deal or walk. Don’t forget a release of liability from the seller if you do assign. Give the seller a move-out date. If he doesn’t move out, give the money back to the buyer and move on. There has to be a better deal out there.


Whose “land trust” document do you use in L/O’s? - Posted by Robert M. Campbell

Posted by Robert M. Campbell on May 31, 2000 at 21:33:12:

Soraya ~

Whose “land trust” contract do you use?


Robert M. Campbell

No Sandwiches? - Posted by Drew

Posted by Drew on May 29, 2000 at 16:10:14:


A while back I think you posted something to the effect that you didn’t do (or no longer do) sandwich L/Os, but you do sell on L/O. Do I remember correctly? If so, would you please elaborate on why you don’t do sandwich L/Os.


Bronchicks “land trust” - Posted by Soraya(SanDiego)

Posted by Soraya(SanDiego) on May 31, 2000 at 23:22:36:


Bronchick’s land trust


One More Thing… - Posted by JPiper

Posted by JPiper on May 30, 2000 at 09:38:36:

There’s now a growing trend amongst lenders to focus on “owner seasoning”. This of course creates a problem for the sandwich lease. Not that it’s necessarily insurmountable right now…but it’s another thing to think about. The lending climate has changed, and if it continues to change in the same direction, a couple of years from now it may be very difficult for your tenant/buyer to get financing because YOU don’t own the property.


Good Memory… - Posted by JPiper

Posted by JPiper on May 30, 2000 at 09:23:44:

Good memory?.I?ve never done a sandwich lease. I do sell some properties with L/O.

There?s a variety of reasons I don?t do a sandwich?.the first of which is the numbers. In my particular market, the rent is a decent amount higher than an equivalent mortgage payment. So right out of the chute the sandwich lease starts to reduce the available cash flow.

Now complicate matters with the question of how you protect yourself in a sandwich lease. It can be done of course. I kind of compare it to ?co-habiting? versus marriage. You can implement a variety of things in a co-habitation situation that would start to mirror marriage?.but as you do, what you start to realize it might have been a whole lot simpler just to get married?.one document and most of the things are taken care of. In a sandwich lease, you can escrow documents, execute performance mortgages, etc etc?.but in real estate you can execute a single document (the deed) and many of the documents that might have been necessary under the sandwich lease are no longer necessary.

Where I like the lease/option as a buyer is for situations with little equity. But frankly I don?t want to own or expose myself to low equity situations from a risk standpoint. So when I have done lease/options I have assigned them.

I can create a similar situation to a sandwich lease without any of the risk characteristics. You assign the lease, and carry a note to create cash flow and a back end. Now the comparison isn?t perfect?.with the sandwich lease you may be able to get the house back, sell it again, etc etc. But then again, the risk characteristics are higher in a sandwich lease.

Now if I were in a different market, I might view it differently. In California as an example, rents are well under comparable mortgages. And so therefore, I think the opportunity there is to expand cash flow by NOT buying and doing sandwich leases. Different market.

In either case, a sandwich lease with a high payment as described by tarun, no cash flow, and very low upfront cash makes no sense at all to me to sandwich?..if this guy stops paying tarun?s cash is gone in two months.


Thanks for the replies!!! (NT) - Posted by Drew

Posted by Drew on May 30, 2000 at 10:43:50: