Re: L/O question for Jim Piper. - Posted by JPiper
Posted by JPiper on March 02, 2000 at 11:50:27:
My guess is that almost any creative transaction can be structured in a variety of ways to achieve virtually the same outcome. What gets altered in the process is the RISK in a transaction, or perhaps the taxes. Don?t know how many years you?ve been doing lease/options, but it?s only a question of time until the subject of risk will be something that will cross your mind.
With either an assignment or a sandwich lease, you are going to pocket some upfront money. The sandwich lease provides monthly income and a backend profit. An assignment can be done by extending a note to the tenant buyer. That note can provide monthly income and a backend. The assignment can be structured to equal what a sandwich lease provides.
The difference is that when structured correctly, the assignment takes you out of the deal. This means that when the day arrives that a tenant a) does not pay b) refuses to leave c) trashes the place?..then you are WAY ahead of where you would be if you were in a sandwich lease. Let?s see?.we?re talking making the payment while the tenant doesn?t pay you, waiting until you get possession, and then perhaps repairing the damage that was done. Care to estimate the damage that can be done to a house by someone who is upset and wants their money back? Of course, I?m sure that doesn?t happen where you live.
So let?s sum this up. With an assignment I can structure my deal to equal the sandwich lease?.only I use a note to accomplish it. My note ?could? end up being unsecured. Isn?t a sandwich lease unsecured too, other than by the lease document? What changes is that with the assignment I remove the risk of the transaction.
Granted, a sandwich lease gives you the opportunity to ?do it again?. So after you pay YOUR monthly payment for a couple of monthly while you extricate your tenant from the house, and AFTER you make the repairs and continue to make the monthly payment, you can then get more upfront option consideration from the next tenant, and hope that it exceeds your out-of-pocket costs. HOPE, however, is something I like to count on as little as possible.
Now here?s a thought though. I wonder if the original lessor/seller would call you if there was a problem with the assignment? I wonder if you could step back into the deal to solve his NEW problem? I wonder if you could do something that would put more money in your pocket?
Just so that you know, I begin EVERY transaction by looking at what I?m risking. If it looks like you?re not risking anything?..LOOK AGAIN?..YOU MISSED IT.