Posted by JohnBoy on March 11, 2001 at 12:45:35:
That is correct! BUT! If you structure it correctly you can back out if you had too! Make your L/O agreement between you and the seller “subject to you finding a suitable tenant within 60 days”! That allows you 60 days to market the property so you can find someone. If you don’t find someone within the 60 days you can back out and void the contract or negotiate with the seller to extend you more time!
Just be sure to carefully screen the tenant you put into the property. If they were to ever stop paying rent to you, you still need to keep paying your rent to the seller, regardless! You would also incur the expense of getting your tenant evicted, going in and cleaning up and repairing any damages they caused and cover the expense of advertising to find another tenant.
This is why you get a sizable amount of “non-refundable option consideration” up front and put that money away to cover these expenses should they ever come up! DO NOT GO OUT AND SPEND THAT MONEY ON OTHER THINGS!!! You use THEIR MONEY to get them out if need be and cover your expenses. Live off the cash flow from the rents you get! Once you have built up a sizable amount of cash to have in reserves after doing several of these deals, THEN you can start using the option considerations from future deals to invest in other things! This is where many people get into trouble when they’re first starting out. They get that cash from doing their first few deals and end up using it to pay other bills or spend it on other things. Then when a problem occurs they don’t have any reserves to cover the costs involved and they end up in worst shape then the seller they purchased the property from! It turns into their worst nightmare and for many it ends up in bankruptcy! Don’t fall into that trap and build up your cash first, then play later once you’re more secured financially!!!