Re: L/O Questions (several) - Posted by JohnBoy
Posted by JohnBoy on January 23, 2002 at 05:07:00:
- Is it a good idea to let the seller know you actually plan on sub-leasing the property? How do get them to go along with this as they will want to screen the sub-leasers themselves and realize they can get higher rent/option/price with somebody else
Yes. You inform the seller on what you will be doing with the property. Your business is in helping people to get their homes sold while at the same time helping people be able to buy a home. Your buyers that you help are those that have minor credit issues, or lack of down payment, or new on the job, or new to the area, or self employeed, etc. They need time to establish themselves in order to get a mortgage to buy the property. You help them by being able to lease a property to them while they get established or clean up any credit issues they may have until they can qualify for a bank loan. The seller has nothing to do with screening or approving them. YOU handle all that stuff. YOU are the one guaranteeing payment on the property and taking care of any damages regardless of what your potential buyer does. If they stop paying, YOU handle it by evicting them. If they trash the place, YOU will take care of the repairs and get another buyer. If you’re dealing with MOTIVATED SELLERS then this isn’t an issue.
- How do you show someone you will sub-lease to the house in question? wether it is occupied or not you will have to get the sellers permission, and then the seller and sub-leaser have another opportunity to discuss.
When you enter into the agreement with the seller your agreement requires the seller to give you a key so you can show the property. If the seller is still living in the property you have them leave when you’re going to be showing it. You might even offer them tickets to a show or a gift certificate to go out to lunch or dinner while you show the property.
- How to check credit/reliability/risks of potential sub-leaser?
You should be working with a GOOD mortgage broker. They can pull the credit for you and they can tell you where your tenant/buyer stands as far as being able to get a bank loan within the next year. They can tell you what your tenant/buyer will need to do over the next year so they can get qualified for a bank loan. By working with a GOOD mortgage broker you can get your credit checks done while offering the mortgage broker new business by doing the financing for your buyers when they’re ready to get a loan.
- What if sub-leaser backs out at last minute and you are stuck with lease-option. say 2 weeks later you find another sub-leaser, but then you would have to make THEIR lease for 11.5 months (assuming original lease 1 year)
First of all, when you enter into a L/O with the seller, YOU get a MINIMUM of 3 years. Try for at least 5 years, but don’t settle for less than 3. You can structure it where you get a 1 year L/O with the right to renew for 2 - 4 more, 1 year terms. This allows you plenty of time to deal with getting a tenant/buyer financed.
- what if sub-leaser doesn’t end up buying house at end of year? all the “gurus” say GREAT, just another option consideration from somebody else, but if you only leased it a year in the first place, you are out of luck for the purchase price and only made a couple thousand the whole year.
Again, you get a MINIMUM of 3 years on your contract with the seller. Your contract with your tenant/buyer should require them to give you a written 60 days notice before their L/O expires with you, as to whether or not they intend to exercise the option. If they don’t intend to exercise the option then you start marketing the property 60 days ahead of time before your L/O with your tenant/buyer expires, to find someone else.
- RISK - you have to wait an entire year to find out that owner has liens against property and it cant be sold
NO! You have a title search done on the property when you enter into your agreement with the seller. If everything checks out you have the seller sign a performance mortgage that you record to protect your interest. If the seller does anything to cause any liens against the property while you have a contract with them, those liens will be in second position to your performance mortgage. If the seller is unable to clear up the liens then you can foreclose on the property and wipe out any liens behind your performance mortgage.
- on REPAIRS - you agree with owner that repairs over 100 bucks are done by them…so when it happens with your sub-leaser, do they contact you or do they contact original owner directly?
Usually you may limit repairs to you paying the first $500 and anything above that the owner would pay. This would only be for repairs due to normal wear and tear. It doesn’t apply to damages caused by the tenant/buyer. YOUR contract with your tenant/buyer would require them to pay ALL repairs and maintenance, regardless of cost. Of course, if they don’t have the money then you will need to pay it to protect the property and then work something out with your tenant/buyer to make payments to pay you back. This is another reason why you don’t run out and spend that option money you get so you have money in reserves to cover any unexpected costs that should arise.
- if you are leaseing, then sub-leasing, DO or DO NOT record the option and mortage at them public records?
YOU record a performance mortgage with the seller. You don’t record anything with your tenant/buyer.
I’m curious though, you stated you took a L/O course? Which L/O course was this? Most, if not all of this stuff should be talked about in the course. So I’m curious as to what L/O course you took that doesn’t tell you any of this stuff? Judging by the questions you asked, it doesn’t sound like you took a L/O course at all.
I would recommend checking out Bronchick’s L/O course so you can get all the proper information needed to do L/O’s successfully before getting yourself into a legal mess down the road. You can find more info about it at this link: