How do you get sellers to go 2-3 years on L/O's? - Posted by Steve Heller

import · June 12, 1999, 5:41pm

Posted by Jim IL on June 12, 1999 at 18:59:19:

Steve,
We do not usually talk about the length of term too much. When we present our L/O scenario we just state that we Lease/Option for a term of 24 months, with x number of renewal periods. We usually start high with the amount of renewal periods, and that is where the sellers always negotiate with us.
The bottom line is, if you act as though you ALWAYS go 24 months, or whatever you prefer, then the seller will not usually question it.
If the seller does want less, I tell them, “this may not work for us”, and then explain about how our Tenant buyers may need more time to get financing, and that helps ease thier mind.
If the seller wants too much, then we will not do the deal.
It depends on how low our price, monthly payments, and other factors as to whether or not we will move much toward a short term L/O.

Good luck to you,
Jim IL

import · June 12, 1999, 5:41pm

How do you get sellers to go 2-3 years on L/O’s? - Posted by Steve Heller

Posted by Steve Heller on June 12, 1999 at 17:41:05:

Hi everyone,

How do some of you experienced L/O investors get the seller to go 2-3 years on the L/O agreement? Any tips would be appreciated.

Steve Heller

import · June 14, 1999, 3:30pm

Just got one this a.m. - Posted by Jim IL

Posted by Jim IL on June 14, 1999 at 15:30:36:

Steve,
Here is what we did this a.m. :
We met with our sellers, and arrived with the L/O agreement “mostly” filled out.
We just left the dates of commencement, and final sales price blank.
We wrote in our contract a 24 month period with 2 renewals.
We had previously (first meeting with seller) explained “How” the L/O works, and what our basic terms were.
After we finished negotiating the sales price, when we take posession and when our first payment is due, we read the entire agreement line for line to the seller.
We stopped after every page and asked if they had any questions?
They said, “no, thanks for explaining this all to us, we understand”, and then we all signed the agreement.

The sellers just assumed that we ALWAYS do a 24 month, 2 renewal period L/O and we never said otherwise.

Bottom line is: We have the place tied up for 6 years, making the mortgage payments (as they stand now) as our rent payment.

We have two months to find a T/B’er before our first payment, and we got the price below FMV now.

There were some “other surprises” today as well. This is a Townhome with a “homeowners association” and a small monthly fee due to that. The seller insisted that he make the association fee payments, because he wants to “deduct them”. (whatever that means, I don’t see how he can or care, he is going to make them and I’m not…YAY!)

We also let him speak first on the price he wanted, and he came in $4k less than we were willing to go.(as my wife kicked me under the table to “accept” his low price QUICK!, but I know, we HAVE to ask for “Better”)

We then said that $1k less than he offered was our “max” but because we felt “good about the deal”, we were willing to split the difference, and go up $500, if he’d go down $500.

FMV: $68k, now
Our option price: $60,500.00
Monthly Rent: $550.00
24 months, (renewable for 2 terms of 24 months)
We also get to keep appliances.

We will sell this on a L/O to our buyer for:
12 month L/O
$78k sales price
$3k-$4k option money upfront
$900/month rent payment
$13,500.00 backend
Our buyer can renew for another 12 months, for an additional $1k, and the “option price” will increase as well.

And with luck, our buyer will FAIL to excercise the option and we can do it all over again.
After all, we have this place “locked up” for 6 years.

So, do this yourself. If I can, anyone can.

Good luck in your investing,
Jim IL

import · June 13, 1999, 11:59pm

Re: How do you get sellers to go 2-3 years on L/O’s? - Posted by Joe Kaiser

Posted by Joe Kaiser on June 13, 1999 at 23:59:05:

It’s all how you frame it.

I often talk to sellers in buy/sell terms instead of lease option terms. Lots of years with a lease option is not common, but 7 or 10 year balloons on an owner contract is not uncommon at all.

See the angle?

In my town, it doesn’t take anything to close a lease option deal, but it takes thousands of dollars to close an actual sale and most of that is due from the seller. So, it’s real easy to talk in terms of a “sale,” but end up writing it up on lease option paperwork to save the seller all those closing costs. And, almost like magic, that ten year balloon simply turns into a ten year option.

Joe

import · June 12, 1999, 9:42pm

Re: How do you get sellers to go 2-3 years on L/O’s? - Posted by rayrick

Posted by rayrick on June 12, 1999 at 21:42:03:

I often explain that despite their best intentions, tenant-buyers’ life situations sometimes change and not everyone decides to go ahead and buy the place. By having a longer term, this gives me a chance to go out and find someone else. You, Mr. Seller, will not notice a thing, since my checks will keep right on coming. Finding a new buyer will be MY problem.

-Ray