Posted by Bill K. (AZ) on March 31, 1999 at 09:51:30:
John,
You would record an “Affidavit and Memorandum of Agreement Concerning Real Estate”. It sounds complicated, but it’s nothing more than a half page form that specifies that you and the seller have come to an agreement on the purchase of said property. It includes the approximate date at which closing is to occur (it could be years in the future), and a statement indicating that a copy of the purchase agreement can be obtained by contacting you, the buyer. Sign the form in front of a notary (to be able to record it) and attach the legal description.
You don’t want to record the L/O itself because someone might try to offer the seller a better deal. Of course, recording this document lets the world know that you have an interest.
You’ll find all of the forms you need for this in Bill Bronchick’s “Lease/Option Workshop” course. It’s fantastic. In addition, I recommend his “Nuts and Bolts of Creative Real Estate Transactions” which contains EVERY real estate form you’ll ever need.
Jim I like what you say when you call the answering machines. My question is when they want to rent and say the rent is for $900 per month. How do you know that in the area you can rent for more to make any cash flow. I’m in Denver and I guess I just assume that the rents are the top with no room for increasing. Do you just call on rentals in a certain area that you know the rent market or do you just call them all no matter where and pay the rent they are asking and then put a tenant in for more(how much more) until it’s sold. It’s just what do you do once the landlord gives you the lease option. Thanks. I have flipped a few properties and now I want to get into the rentals. Thanks in advance.
Re: Jim-NC: When Calling on Rentals to Purchase!! - Posted by Bill K. (AZ)
Posted by Bill K. (AZ) on March 30, 1999 at 13:03:02:
John,
I know that you addressed this question to Jim, but I thought I’d tell you what my plan of action would be in this case.
My first offer is to cover the seller’s mortgage payment. So, even though he’s trying to rent it for $900/mo, I’ll make an offer that is probably somewhat lower than this. I tell the seller that for a lower rent he has no responsibility for fielding calls from the tenant. I’ll do that. Plus, we agree to a selling price at the same time. He sees his “exit”. Hence, if I can pay, say, $750/mo, and re-rent for $900, I’ll have a small positive cash flow as I require the tenant/buyer to pay for all minor repairs. Plus, I get option consideration, up-front, to cover any unanticipated expenses.
In addition, I try to get a little more than market rent for the property since I’m not looking for a tenant. I’m looking for a tenant/BUYER. Someone wanting to purchase shouldn’t balk at having to pay a little more than market rent as long as that extra rent is applied as a rent credit toward the purchase price.
Bill, thanks a lot. This does help. I needed to know if you can get a lower rent rate in this case. This clears a few things up. I take it that the seller is somewhat out of the loop except for getting paid. Do you mail your payment to the seller and if the seller has to pay someone that’s on him? I’ll get this yet. There are so many avenues for an investor in real estate. Thanks again.
Re: Jim-NC: When Calling on Rentals to Purchase!! - Posted by Bill K. (AZ)
Posted by Bill K. (AZ) on March 30, 1999 at 16:03:07:
John,
Right. That’s one of the advantages for the seller. All they do is sit back and wait for their check. However, in order to ensure that your interest remains intact, you might want to get an escrow company to send the mortgage check to the lender. That way, you don’t have to worry about the seller running off with your payments without paying his/her lender.
Finally, I forgot to mention something in my previous post. You’ll get a good feel for rental rates in your town by looking at ads in the “Homes for Rent” section of your local newspaper.
When you do L/O’s are you always checking to make sure title is clear, or only when you suspect it might not be.
Are you also always recording your option?
Thanks
Re: Jim-NC: When Calling on Rentals to Purchase!! - Posted by Bill K. (AZ)
Posted by Bill K. (AZ) on March 30, 1999 at 16:34:26:
Valerie,
It doesn’t hurt to have your title company provide you with a preliminary title report. It will make you feel better about the deal.
I’ve heard of sellers who actually renege on a L/O deal. Recording an agreement of your interest, not the actual L/O agreement itself, will create a “cloud on the title” and make it difficult for the seller to convey the property to someone else without your involvement in clearing up that cloud. It’s always a good idea to do whatever you can to protect your interests.
Bill how do you record an agreement of your interest without recording the L/O agreement itself? Or why wouldn’t you want to record the agreement itself? Does it have to do with the Due on Sale clause that most have. Thanks.