Lease Option / Realtor Question - Posted by Lee Allen

Posted by Lee Allen on September 16, 2011 at 15:31:19:

One Real Estate Guru told me that you can make lots of fast
money by wholesaling lease options on properties that is
listed on the MLS or with a property manager.

How is the best way to handle a transaction like that when a
Realtor is involved.

Example: If a house is advertised on the MLS that it is
available for lease purchase with $5000 down and $1200/mo
then how should I present a deal to the listing Realtor?

Would just tell the Realtor that my program works like
The buyer will pay me $5000 and I will give you 25% of what
I collect to them.
The Realtor will get the first months rent.
The Realtor gets the balance of their commission when the
house sells

Should I outline to the Realtor that my services are

  1. Marketing the property
  2. Screening the hundreds of buyers
  3. Credit & Criminal background checks on buyer
  4. Checking title to property to make sure there are no
    title problems
  5. Sending buyer to a credit coach
  6. Lining up permanent financing for the buyer.
  7. Setting up account with servicing company that receives
    the buyers payment and pays the underlying mortgage

Re: Lease Option / Realtor Question - Posted by Skep Tical

Posted by Skep Tical on September 17, 2011 at 11:40:43:

If said “guru” says so, why isn’t said “guru” doing so? Wholesaling lease options? My BS Detector just went off.

Re: Lease Option / Realtor Question - Posted by BTI

Posted by BTI on September 18, 2011 at 15:24:09:

So you want to approach me, a licensed agent, and collect a commission for activity that requires a license in my state. I don’t think so. If you want to refer a t/b to me for a finders fee fine, but $5k I don’t think so.

Your also welcome to be the t/b and sandwich it if you like but your still liable on the lease as a principle until the option is exercised or expires. Have to look out for my seller, not your checkbook.

Re: Lease Option / Realtor Question - Posted by Lee Allen

Posted by Lee Allen on September 19, 2011 at 02:05:25:

As an agent you should not assume that you know what is best for your client. You should present all offers to your
seller and let them choose what is best for them…not what is best for your commission.

If an agent won’t present my offer then I may just go around the agent and explain the offer to the seller myself.
I would also let the owner know that I had presented the offer to his agent.

I have assisted numerous sellers that have hired 3 or more real estate agents and the only solutions that the agents would give them is
to cut the price. I have seen agents take an over priced house that they knew would not sell just so that they can have their sign in the
owners yard.

I don’t know many agents that will tell the owner that now is not the best time for them to sell their house. I have even told some
sellers that the change of their house selling in this economy is remote and that they need to just wait until the market turns back

Most agents don’t take into consideration that the owner is bleeding $800 or more a month. I have watched numerous owners finally just
decide to quit paying on a mortgage because the house sat vacant for 9+ months. The house ends up going into foreclosure, the owners
credit is destroyed, the banks take a loss, another foreclosure is dumped on the market.

Also, I am now a licensed agent but I was a real estate entrepreneur for about 5 years longer than I have been an agent.
I have been taught how to think outside of the box. Have you ever considered creative financing to get a house sold for your client?
Would you consider taking part of your commission in the form of a note? I have found that most agents don’t know how to make a deal like
this work.

Re: Lease Option / Realtor Question - Posted by Lee Allen

Posted by Lee Allen on September 19, 2011 at 01:39:45:

The way that the deal is structured you do not need a real estate license.

Here is an example of a deal that I have done before.

The owner of a house has been transferred to another state and he needs to be at his new job in 60 days. The owner has had 2 different agents
try to sell his house for

$159,000 for a year. The owner even tried to sell it FSBO for $145,000 and couldn’t get any buyers.
This house appraised for $155,000 in 2006 when he bought it.

The problem is that other houses that are just like the one that the owner have sold for $135,000. The most that his house will appraise for
in this market is $135,000.

There are several foreclosed homes in his area that are being sold for $110,000.

The owner must have $145,000 because this is what is owed on the mortgage. The bank will not accept a short sale on the house. The owner
doesn’t have any money in

savings nor can he carry the cost of a vacant house and pay for the new apartment that he will be living in.

Several agents have told him that the will list the house for $135,000 and will only charge him a commission of $8100. The owner will only net
about 124,900 after

Realtor fees and closing costs. That means that he will have to bring $20,100 to closing in order to sell the house.
The owner does not have that kind of money nor does he want to be an out of state owner that has to hire a local property management company
to rent out his house.

The owner has even had a property manager try to rent out the property for $800/mo. The property manager advertised it for 6 months but
couldn’t get it rented. If the

property would have been rented the property manager wanted 10% of what the property was rented for. The owner would have netted $720/mo and
the owner would be

responsible for paying for repairs and maintenance. The mortgage on the property is $1050/mo. The owner would have to come up with $330/mo to
cover the mortgage.


I approach the owner and negotiate a purchase of his house with the following conditions.

  1. I will lease the house from him for $1050/mo for 5 years. At the end of 5 years I will purchase the house for the balance that is owed on
    the mortgage. The seller

will not have to pay any real estate agent fees.

  1. The property will be managed and maintained by me with the exception of major systems. The seller has a home warranty that covers
    the major systems so he isn’t worried. The seller is responsible for paying for the home warranty every year until the house is finally sold.

  2. I also have the right to assign this contract to another buyer with the owners approval.

  3. I find a buyer that has OK credit but for some reason he cannot get a mortgage today. The buyer only has $4000 to put down.
    The owner agrees to allow me to assign the contract to the new buyer.

  4. I sell the deal to the new buyer for $157,000. The buyer only has $4000 to put down and I agree that I will take back a note for $9,000 at
    9% that is payable over 5

years. The buyer will pay me $189.02/mo for 60 months.

  1. The buyer leases the house for $1050/mo for 5 years. The buyer takes care of any small maintenance issues.

  2. At the end of 5 years the the buyer get a refinance loan for $144,000 on the property. The old mortgage balance is $131,835. I get another
    check for $12,165

This was a Win/Win/Win/Win solution for everyone.
The seller was able to get the house sold
The buyer was able to get a house
The Realtor made $2500 on an house that couldn’t be sold. He wouldn’t have made anything.

I got paid $27,506.20 for knowing how to structure the deal

A Real Estate License is not needed because I am a principal of the deal and I am selling my personal property (the contract).

Re: Lease Option / Realtor Question - Posted by BTI

Posted by BTI on September 27, 2011 at 18:04:46:

Haven’t been to this site in awhile, but I of course noticed your most wise and most profound post.

Your first pearl of wisdom suggested that agents, me included, assume to know what is best for their sellers but don’t, and that you do, thanks for your help, yep, thank god your here to straighten us out.

Second pearl of wisdom is agents should present all offers to their sellers period. Not a obvious legal requirement if the offer is deemed frivolous, but something I have personally done as a broker since 1965.

I will go around the agent, of course you will, and often times this action is called for if you don’t have a license but be careful how you do it. I’ve had 3 cases in my career where I won interference torts, and the sellers in 2 of the cases won large damages from the hotshot for fraudulent statements that induced them to sign the contract.

I have to laugh at the have I ever considered statements. I have been investing since 1955 and did my first lease-option in 1957, I’ve considered things you haven’t even thought of, or to this point even read about, but with all the borrowed knowledge you have expressed in your posts I’ll assume your going to continue to study and there is to be a aha moment in your future.

Check the mirror tomorrow morning, do you ever see a Saint, or do you see a guy really out to line his pockets and justifying it as a noble effort somehow. From over here I don’t see a Saint, and generally just knocking others will not buy you a pedestal to proclaim your Sainthood from. Mother Teresa your not.

Let us know when you have helped out several others and got nothing out of it but satisfaction, or even lost a few bucks doing it. I know many agents who have done just that but for some reason I don’t think you will be one of them. I could write a book to cover it all for you from A to Z but I hate to type and it is far too much work and my greed gland would kick in and I would become a guru, making millions while my students made thousands.

I’ve mentored a couple of hundred new investors over the years for free, well almost free, it did cost them a cheap breakfast every Saturday morning and I enjoyed doing it. I hope you turn out to be the kind of investor they became, and the kind of person they each are, which is why I agreed to mentor them, and turned so many others down.

Re: Lease Option / Realtor Question - Posted by LeasePurchase

Posted by LeasePurchase on September 22, 2011 at 15:01:19:

That is the smartest thing I’ve ever heard coming from an agent. I’d love to work with you.

Re: Lease Option / Realtor Question - Posted by Mike P-Ohio

Posted by Mike P-Ohio on September 23, 2011 at 14:47:56:


I just started doing lease options and i love them. Truly no money down and very little to no risk. Can you explain to me how you structured the deal so you got the $12,165 difference at the end of the option? Thanks!


Re: Lease Option / Realtor Question - Posted by Nick

Posted by Nick on September 21, 2011 at 15:26:25:

Hi Lee Allen, Thanks for your post. I have a question about about approaching seller for lease options. Do you approach or contact the seller directly or do you go through the Realtor to present the offer? How does the Realtor get paid? Thanks, Nick

There are some big problems in the theory Lee Allen laid out:

#1 The buyer would be overpaying for the property to the tune of almost $46,000! That’s the $22,000 mark up on the price ($135k FMV vs $157k strike price) plus nearly $400/month above a rent rate that apparently no property manager can get.

This is NOT a win for the buyer.

#2 If an agent understood this deal and was inclined to get involved they would be doing it themselves, no way in hell are you ever going to find an agent who would help you put a deal like this together for a piece of the option consideration.

This is NOT a win for the agent

#3 Once the buyer realizes they’ve been bamboozled they will either sue the seller (and the agent, and the investor) or they will walk away and the seller will be back to square one with a house they can’t sell, can’t rent, and can’t afford.

This is NOT a win for the seller.

#4 When all of this goes down guess who’s going to get sued?

This is NOT a win for the investor.