L/O question - Posted by Tim (CT)

Posted by Tim (CT) on March 13, 2001 at 08:40:34:

nt

L/O question - Posted by Tim (CT)

Posted by Tim (CT) on March 12, 2001 at 13:48:22:

If I L/O a property from the seller and then turn around and sublet it to someone else (sandwich), at what point can I back out of the deal? Let’s say I’ve got a good tenant and they pay their rent on time but I’m finding that the property requires too much babysitting, can I walk away? Or, can I only walk away at the end of the lease?

Any thoughts would be appreciated. Thanks.

Re: L/O question - Posted by Matt B

Posted by Matt B on March 12, 2001 at 14:19:57:

If your lease option contract contains an assignability clause like mine does, you can simply offer to assign the contract to the tenant/buyer. This releases you from any more obligation involved in the property or contract and the tenant/buyer still gets to keep the place.

Re: L/O question - Posted by Tim

Posted by Tim on March 12, 2001 at 14:30:12:

Thanks for the information. Question for you – That doesn’t change the status of the existing tenant does it? Do they just continue on as normal but pay their rent to the seller? Do I need to convince the tenant/buyer on the assignability idea or is it something that’s done between me and the seller, more or less behind the scene and, therefore, seemless to the existing tenent/buyer?

Re: L/O question - Posted by Matt B

Posted by Matt B on March 12, 2001 at 15:04:33:

Assigning the contract to the tenant/buyer does indeed change their status. It makes them the tenant/buyer in an agreement with the owner of the place. They are no longer your sub-tenant/buyer, but they are the tenant/buyer of the owners. However, they would of course continue to pay their rent, making their payments to the owner (or the bank, which is how I set up my deals.)

It is extremely easy to convince the tenant/buyer to take assignment of the lease option. For one, it should give them a better deal. You should have been charging them a higher rent than just the house payments, so they will get a decrease in monthly payment by taking assignment of the contract. Also, you should have been selling to them for a higher price than what you negotiated with the seller, so they would get a better price on the house as well by taking assignment of the contract.

When you assign the contract to the tenant/buyer there is really no involvment with the seller. You would simply inform the seller that the contract has been assigned and provide them with the contact information for the tenant/buyer.

Re: L/O question - Posted by Tim

Posted by Tim on March 12, 2001 at 15:18:37:

I don’t understand this sentence ’ …you should have been selling to them for a higher price than what you negotiated with the seller …’. My intent is to not give the tenant/buyer a lease/option just a regular lease. Therefore, there would be no selling to the tenant/buyer (at lease when I was involved). Is this not the correct thought process? Did I miss something?

Re: L/O question - Posted by Matt B

Posted by Matt B on March 12, 2001 at 15:36:16:

Maybe I missed something here. Why would you just rent to someone if you just have a lease option with the sellers? What is your strategy here? To sign a lease option with the sellers and just rent the place out?

Here’s how my lease options go. I negotiate a selling price with the owners. I agree to pay the mortage payment, taxes and insurance directly to the bank or insurance company or whatever, but never directly to the seller until my sub-tenant/buyer excercises their option to purchase. I write this up in a lease with option to purchase contract.

I then put a tenant/buyer in the house. If I am paying $950 a month and have agreed to pay the owners $105,000 when my tenant/buyer excercises their option to purchase, then I will probably turn around and sell it to the tenant/buyer for $1,150 a month with a sale price of $120,000.

I write up a lease AND a purchase and sales agreement with the tenant/buyer. After all, they will be giving me 3-5% of the purchase price as a non-refundable option deposit to secure their option on the property, and who would do that for just a lease? I am looking for BUYERS, not tenants. I want people who are building an ownership interest in the house, not just people who are looking for a place to rent. I am not interested in being called at midnight to be told that their toilet is backed up. I am not a landlord.

What study have you done into lease options? This is not meant to be insulting, but have you studied the process from start to finish? It seems as though you’re missing a lot of information as to how a lease option works.

Re: L/O question - Posted by Tim (CT)

Posted by Tim (CT) on March 12, 2001 at 15:55:08:

I am in the beginning stages of looking at lease options. Your comment was very well taken and correct. I really don’t have alot of education with regards to lease/options yet.

Generally speaking, my thoughts were to lease/option a property for three years for the sole purpose of getting it for a lower price (with monthly credits). With your comments, I will continue to look into the lease/option strategy? Any thoughts on a good book or course?

Thanks for your time.

Re: L/O question - Posted by Matt B

Posted by Matt B on March 12, 2001 at 17:38:23:

I think lease options are a great way to get started in real estate. It is possible to do lease options with the goal of simply getting it for a better price. However, there are so MANY other advantages to doing lease options.

I bought the big LeGrand package that you can find on this site under Books/Courses, but it is kind of expensive. It is worth it though. However, I have heard great things about the lease option courses of Joe Kaiser and Bill Bronchick. Any of those guys have great courses that would get you the education that you need to get going. On top of that, you can always post any questions that pop up here and get the help of some people who are experienced doing this stuff.

Good luck. Let me know if I can help any further.