Posted by Dave T on June 24, 2000 at 16:19:11:
You need to check your state law. When the seller evicts the master tenant (you), the eviction order might apply to any subtenancies you may have created (your tenant/buyer).
L/O Objection: Seller concerned about recourse with sublease - Posted by Monique
Posted by Monique on June 23, 2000 at 09:11:45:
Recently, two sellers who were willing to L/O to me as an individual were not interested in my having a sublease. Both were concerned about regaining possession of the property from the subtenant if I failed to perform as a tenant.
Has anyone else gotten this kind of concern from a seller? How have you addressed it?
Maybe I just need to find more sellers who are motivated.
Thanks,
Monique
Re: L/O Objection: Seller concerned about recourse with sublease - Posted by Matt B
Posted by Matt B on June 23, 2000 at 09:52:33:
In all my lease option dealings, this only became a semi-issue in one deal. The reason I think that it doesn’t become an issue for the sellers that I deal with is because from the very beginning, I let people know that it is a business that they are dealing with, not an individual. This is also a major reason why no seller has ever cared about my personal credit before they would do a deal with me.
I tell sellers that my business is the one that they will be dealing with. My business cares about its reputation and won’t stop making payments on their house, since that will negatively affect my business’ reputation.
I believe that presenting myself as a business from the beginning has allowed me to get many deals that would not have happened if I were simply presenting myself as an investor first. Even personally, I would probably not want to do business with an individual “investor” in a real estate deal. Now that I think about it, every deal that I did with an “investor” went sour!
Any way, here’s a real life example from my experience. I secured a lease option on a piece of property that was out of my state. Since I wasn’t really marketing it as well as I could, I couldn’t find a tenant/buyer before my first payment came due. I found another investor that I assigned the contract to. He put tenant/buyers in the house, but then he stopped making the payments. (This guy is such a weasel! He really put me in a bind because the owner was a friend of mine!) Any way, the owner, with my help, got him out of the deal, and was able to contact the tenant/buyers and work out a deal with them. Unfortunately, this “investor” skipped out with the tenant/buyers’ $5,000 option deposit, but they were able to get much better terms for their lease option by cutting him out of the picture and dealing directly with the seller. This is one way that a deal can be salvaged if the “investor” stops paying, and it may be something that can be mentioned to these “hesitant” sellers. I still think approaching the deal as a business is the best way, though.
Good point, and we are - Posted by Monique
Posted by Monique on June 23, 2000 at 17:25:51:
Matt,
Your point is a good one. And I should have worded my post better. We actually do represent ourselves as a business to sellers from the very beginning.
These two sellers were expecting calls from individuals and were disappointed to learn that we are a business, incorporated and all. They were advertising houses For Rent and I inquired about “rent to own”. They said they would be interested if it were for me to live in. My only guess is that perceive they’ll have more control when dealing with an owner-occupant.
This doesn’t happen often, but I thought I’d throw it out there since it’s come up twice recently.
Monique
Matt, sounds good but what if your not incorporated (llc, etc…) yet? - Posted by CurtNY
Posted by CurtNY on June 23, 2000 at 12:57:33:
If an investor is just starting out and hasn’t created a business entity yet… then what? Should a newbie hold off on L/O? Are there other ways around this road block? Just food for thought.
CurtNY
Re: L/O Objection: Seller concerned about recourse with sublease - Posted by Scott(AK)
Posted by Scott(AK) on June 23, 2000 at 11:09:10:
Matt,
I have found the same to be true in my market. For some reason folks feel more comfortable dealing with a corporation who’s business is real estate investing in ways that make things happen.
My personal credit doesn’t come up anymore these day. After all, it’s sorta accepted that all corporations have lots of assets, LOL.
Good post.
Scott
Re: Good point, and we are - Posted by The Donald
Posted by The Donald on June 23, 2000 at 21:24:34:
T&T. Are the sellers prepared for the ordeal of Tenants and Toilets? Simply tell them that you’ll be responsible for all maintenance and repair issues on the property (usually up to $500 or $1000 annually), and that they’ll never get a call in the middle of the night to fix a clogged toilet.
Plus, unlike Realtors who take up to 6% or more of their money to sell the home, you’ll actually pay them for the privilege of being able to buy or sell it, plus you’ll manage it for them as well.
Re: Good point, and we are - Posted by Matt B
Posted by Matt B on June 23, 2000 at 18:23:48:
OK, how about this? You ask the sellers if they have been landlords before, or have any experience managing rental property. You can ask them if they are prepared to deal with calls from their tenant/buyers late at night complaining about a stopped up toilet. Ask them if they know how to handle a tenant that suddenly stops paying and decides that they don’t care enough about a house that they are going to get thrown out of any way to maintain it. There are plenty more landlord horror stories to share with them, just ask any of the landlords here.
The point is to make them aware that, as a real estate business, you deal with all sorts of property management issues every day. Doing a lease option with you would be a thousand times better than them trying to work with an individual. I just thought of something else. Print out my FAQ list on lease options (listed under the Money Making Ideas) and give them that. It may also help. That list has given many sellers the little push that they needed in order to do a deal with me in the past.
I hope this will help some.
Re: Matt, sounds good but what if your not incorporated (llc, etc…) yet? - Posted by Matt B
Posted by Matt B on June 23, 2000 at 18:32:15:
First of all, it is so cheap and easy to incorporate in most states, that I don’t think that should hold anyone back from at least creating the basic structure. I will say that if you start out as a C corp (as I did), you must get your stuff straight from the beginning. You have to make sure that you keep the correct type of records, and follow the guidelines for your state. However, setting up an LLC or S corp is easier, and you can always shift over to a C later on if you decide to go that route.
By the way, before I get a bunch of questions as to what the benefits are to each type of entity, be aware that I am not a lawyer and do not know all there is to know about corporate law, and which structure is best for you. Do some reading and consult your attorney.
Other than that, I can only say that you might try assuring the seller that you are a “professional investor”. You can assure them that it is in your best interest to conduct all your deals in a professional manner, so that you do not damage your reputation as a professional. One side note, though. This wouldn’t work on me. That weasel from my earlier post said the same thing to me, so I’ve learned my lesson.
I hope this helps.
Do you use letterhead on your Kaiser letters? - Posted by Monique
Posted by Monique on June 23, 2000 at 22:28:05:
Hey Scott,
I know you’re a Kaiser L/O Strategy fan. Do you use letterhead or refer to your business in your initial letter to landlords? Joe’s letter reads as if he’s an individual, not a business.
Your thoughts?
Monique
Excellent benefits to the seller, but what about recourse - Posted by Monique
Posted by Monique on June 23, 2000 at 22:14:46:
Matt,
You point out the benefits to the seller extremely well. In fact, I love your FAQ list.
You mentioned “Ask them if they know how to handle a tenant that suddenly stops paying and decides that they don’t care enough about a house that they are going to get thrown out of any way to maintain it.” These sellers were concerned with the case that WE become that tenant that suddenly stops paying. How do they evict our subtenant if we cease to perform?
Clearly, we WILL pay on time and will perform, but they don’t know that yet. What they do know is if we are living there, they know they can go down to the courthouse (or get their attorney to do it) and start eviction proceedings. However, they don’t know if they have recourse to get a subtenant out (one that they have no lease agreement with) if the master tenant (us) does not pay.
Other than saying our business reputation is at stake and that we promise to pay, is there a way to allay their concern?
Maybe this is a question for the LegalWiz. 
Monique
Re: Do you use letterhead on your Kaiser letters? - Posted by Scott (AK)
Posted by Scott (AK) on June 23, 2000 at 23:33:00:
Monique,
I don’t target the “tired landlord” from the courthouse records as shown in Joe’s course. (Full time Army doesn’t leave me time) although it is an approach that will be added to my arsenal when I get the opportunity.
I am targeting another group of motivated sellers but even with them I do not use letterhead. Just a simple letter with my corps return address in the corner using Joe’s format and software.
Hope this helps,
Scott