Lease Options, Seller wants references? - Posted by Jim IL

Real Estate Investing
1

Posted by Bill K. (AZ) on May 18, 1999 at 11:20:23:

Steven,

If getting the money is the issue, this is not a bad technique. Let me add that, if there’s a mortgage involved, you should think long and hard before giving the 6 months advance rent to the seller themselves. I would only make this offer if the money were to be deposited with a third party who agrees to pay the mortgagor directly. This way, the loan is kept current and you don’t end up with a nasty surprise when you are ready to exercise your option.

Bill K. (AZ)

2

Lease Options, Seller wants references? - Posted by Jim IL

Posted by Jim IL on May 17, 1999 at 23:57:46:

Hello all,
I have what may seem to some to be a silly question, but am kind of stumped.
I have a very motivated seller on my hands and am trying to L/O his home from him.
We discussed the L/O sceanrio today, and did as Legrand suggests, leaving a blank L/O contract with him for review.
This should go quick, since the seller has a job transfer and starts the new job out of state next week. (he leaves Thursday!!, but will leave the wife behind to move everything and sell the home if needed)

Tonight, the seller sent me an e-mail requesting reference info from other deals we have done.
He wants to speak with the other sellers and buyers.

We have only got Three deals completed, and have several “pending”. (trying to get T/B’ers as we speak).
The problem I’m having is that in my 3 completed deals, all three of the sellers are out of state and I only have addresses for them, not phone numbers.(they are REALY new deals, and the final info is coming, heck, we haven’t even sent our first payments out yet!!)
Contacting them for permission to release info will be difficult and take too much time.

I contacted two of my buyers tonight, and they stated that they’d “Rather I not release thier info, as they feel “how” they bought the homes is personal”. (okay?!!?)
I’m confused by that, I figured they’d be happy to tell how well it is working out.
The third buyer was not home, and I left a message on thier phone. (I need to act fast, and so does the seller, but I need references or a way around it if possible. I will not mislead this guy, but I want him to feel comfortable doing business with me)

Since we basically just started the L/O routine, we do not have any others to contact, and also the ones we do have are brand new, so the history is short.(REAL short!, as in weeks)

The Seller in this possible deal states that his concern is whether or not he will actually receive his payments in the out of state location. He does not want to come back and deal with it. (which I understand completely.)
I have already explained that the contract is legally binding and he has the security of still owning the home. Also, I told him, “we are just renters and easy to evict”. (as per Legrand).

Any other ideas as to “how” to put this sellers mind at ease?
I am open to any and all ideas.
We have been opened and honest in all our dealings, so the integrity part is solid, but proving seems to be difficult.

Frankly, not one single other seller has even asked for this type of info, so we do not have a reference list.
Although, we will soon, after this experience.

I have explained that primarily, to date, we have done other types of REI, and offered documentation and references from those, but he declined.

Help!
This will be a GREAT deal, if we can get it signed!!
Good cash flow, will fill with a buyer fast (HOT area!!), and the price is $15k below FMV!! (so GREAT back end too!!)

Thanks in advance,
Jim IL

3

Thanks all, this is what I did… - Posted by Jim IL

Posted by Jim IL on May 18, 1999 at 21:03:45:

Well, first, “thank you” to all who responded.
I answered my sellers questions tonight.
I did as I had intended to do, and as I have done all along. I used honesty, and kept the “take it or leave it” attitude in my head. No sense crying over not getting a deal, since we all know there are more out there.
But, I won’t be crying here!!! Looks like we got it!!!
Anyway,
I informed Mr. seller about my companies strict privacy and confidentiality rules.
But, since, “time is of the essence” for my seller, (he is starting his new job out of state next week), I did call some clients and ask them to be references.
A couple said “no”, and two said, “sure, have him call, but I’ll only tell him we have no problems, and not give any numbers, that is MY business!”

I also referred my seller to the Better Business bureau, and gave him a list of personal references, and past business contacts. (Lawyers, RE agents, and title company employees)

So, to make a long story short, my seller wants to meet tommorrow and “negotiate the appliances to stay or not”.
(Hmmmmm…to keep the fridge, or not to keep the fridge?
That may be a deal killer thier huh?)
Anyway,
Thanks to all, and good luck to you,
Jim IL

4

Make payments locally - Posted by hkCA

Posted by hkCA on May 18, 1999 at 14:56:19:

See if they would feel more comfortable if you sent your checks to a local party such as their local attorney, CPA, relative or friend. It may give them a feeling of security since someone locally would be keeping an eye on the situation.

hkCA

5

Re: Lease Options, Seller wants references? - Posted by Matt B

Posted by Matt B on May 18, 1999 at 12:18:22:

Jim,
Congratulations on the lease options! Didn’t I tell you they were the way to go? MUCH easier than those rehabs or flips, huh?

As far as your question goes, I have found that simply being honest with your seller is what gets results. I am as honest and upfront about every single aspect of what I will be doing. I have had a couple fo sellers pull out of deals, (interestingly enough, the “little deals” that LeGrand says to avoid!) but everyone appreciates my honesty.

So far, my most difficult deal has been a late 20s single woman seller who brought along her father when I looked at her house. She had tentatively agreed to a lease option over the phone with me. I drove nearly an hour and a half to look at the house. When I asked if she was ready to sign, her father said that they had a few other people coming to take a look at the house.

I was a bit disappointed since I had driven so far and was under the impression that she was ready to sign a contract. Even so, I remained professional and described the lease option deal to her father, knowing that HE was not the motivated one. HE didn’t really have a need to get rid of the house. He asked for a copy of my contract, which I gave him. I also realized that he had taken control when I realized that he was asking all the questions. He asked how long I had been doing this, how many properties I had done this with, how many had actually been refinanced out, what would the Better Business Bureau tell him if he called about me, etc.

Since I was very honest with him, and did not show my disappointment at having to drive all that way without getting a contract signed, I made a pretty good impression. I even had a smile on my face and shook his hand as I left.

He called me up TWO WEEKS later! He asked for some slight modifications to the contract. He also had a major concern that I was putting no money into the deal. I asked him, “What would answer that concern and make you comfortable enough to do the deal?” After much conversation, he said that he would like to see some money put down. Since I never want to come out of pocket for deposits, I suggested that when I put a tenant/buyer in the house, I would evenly split the option consideration deposit that I received from them.

I got the deal! The house is worth $100,000, on an acre of land, swimming pool, beautiful! It is a 3 bedroom, 2 bathroom house in a country setting. My price is $79,000. The payments are $688 PITI. I can get $800 rent for it. I am getting a 75% of principle portion of the monthly payment rent credit. (That was his figure. This guy was pretty sharp.)

Now another interesting thing about this deal is that a woman called me a few days before we signed the paperwork on this. She told me that she had called the for sale sign in front of the house, and this guy told her that he and I were about to close on it. He told her that I do rent-to-own type deals, and maybe I could help her!! Pretty cool, huh? He is referring a sale to me!

Good luck, Jim. Keep us posted.

6

Be Honest - Posted by John Bulik

Posted by John Bulik on May 18, 1999 at 10:32:55:

Jim,

I went through the same thing you did when I first got started.
First, congratulations on your completed deals. Feel good about that because it tells you something about your ability.
I have done a large number of lease / options and I have found that honesty works best. You have recently started your business and paid a great deal of money for professional training. You likely have some experience in your background that relates as a strength to help convince the homeowner of your abilities (construction, finance, maintenance,???). You said,“I have explained that primarily, to date, we have done other types of REI, and offered documentation and references from those, but he declined.” When you explain your reference situation, give them this documentation.

Remember to find out what the owners concerns are.
The most typical ones are:
1.Their property will be destroyed and they will get it back.
2.They won’t get the rent in order to make their mortgage payment.
3.You will bungle this deal and they will be left holding the bag. Lawsuits!

They want their interests protected and it is up to you to convince them that you and your contracts are of a high enough caliber to provide that protection. Some people are willing to take a chance with someone new if they feel that they can be trusted.
I would not tell them that you don’t give out reference information. If I did that in my deals there would have been many missed opportunities.

Remember, that most homeowners are trained to love or learn to hate realtors and that is what you are compared to.Your job is to convince them that you are offering an alternative, not fringe real estate.

In the future it is a good idea to get homeowners that are moving out of state to write a referral letter. Even better is to get them to write a glowing one after working with you for a year. In my meetings with homeowners I bring theses letters and a typed list of names and phone numbers of happy clients. It works like a charm.

Good Luck,

John Bulik

7

Re: Lease Options, Seller wants references? - Posted by Steven

Posted by Steven on May 18, 1999 at 09:48:34:

I’v never done a l/o before but what if you paid
him the first six months up front. It sounds like
the deal would be worth it if you can aford it. I’m
sure that cash up front would look rather nice to
Mr. Seller and it could come out of your buyers
option money.

Just a thought I’v never actually done this.

Steven

8

Control is being shifted to them. - Posted by Matthew Chan

Posted by Matthew Chan on May 18, 1999 at 03:24:58:

It may be a good deal but I am not sure I like having someone trying to make me run around gathering information to “prove myself”. Who is doing whom the greater favor here?

They don’t sound terribly motivated. Maybe they should deal with the house themselves. I would tell them that every deal is a little different and even if they were the same that you are not liberty to discuss someone else’s transaction due to confidentiality issues. (It is kind of true since 2 of your buyers already feel that way.) Ask your guy what if someone were to call him out of the blue and to spill their guts on the details of his deal? See how he responds.

You might have to let this guy go if he is too insistent, takes up too much time, and becomes a pain no matter what the deal is. It doesn’t sound like a technical, “deal-analyzing” issue since you’ve already figured it out without anyone’s help.

It sounds like a seller motivation / you-taking-control issue here.

9

Re: Lease Options, Seller wants references? - Posted by JohnBoy

Posted by JohnBoy on May 18, 1999 at 01:32:14:

Mr. Seller,

I’m very sorry, but the people I deal with is kept confidential. I don’t give out their names and phone numbers. I talk to a LOT of people in this business and if I started handing out the names and numbers of everyone I do business with every time someone asks for references I’d have a lot of unhappy sellers calling me up and screaming at me for giving out their personal information like that. Think about it. Would you like it if I gave out your number to a 100 strangers every month so they can call you to ask questions about me? Maybe one or two here and there you might not mind, but Mr. Seller, I talk to well over a 100 sellers every month. This is what I do for a living. I’m out talking to sellers all day long 7 days a week. How long do you think it would be before you get real tired of me handing out your number to strangers every day?? I’m sorry, but that’s information I just don’t give out in respect for my sellers privacy the same as I will respect your privacy.

Mr. Seller, I’m telling you this up front because If I wanted to I could give a list of people that would verify just about anything I need them to even though we never done any business together before. You would call them and they would tell you everything you wanted to hear. But I’d rather be honest with you up front by explaining to you my policy when I deal with private parties selling their homes. Anything we work out between each other is kept strictly confidential and that’s the way they want it to be. And that’s the same way it will be between us if we do business together.

If you would like I’ll be more than happy to furnish you with a copy of my credit report. (providing you have a good credit) My credit report will speak for itself. If I wasn’t delivering on my end of the deal you wouldn’t see a clean credit report. What you would see is collection agencies and judgements against me for money being owed to other sellers if I didn’t pay them on time. You can check the court records also if you would like. Everything filed through the courts is public information. If I didn’t pay my sellers on time you would most likely find pending lawsuits and/or eviction suits filed against me in the public records at the county court house.

Another reference you can check is the better business bureau. If I didn’t make my payments on time there would be a lot of complaints filed against me there also. That’s one of the first things an unhappy customer would do is to complain to the better business bureau. I wouldn’t be in business very long if I didn’t pay my payments on time to everyone. Believe me, skipping out on paying someone on one house isn’t worth jeopardizing my reputation. Word would get around so fast and every realtor in the area would be bad mouthing me all over town. I don’t need those kind of problems. So you see Mr. Seller, it’s extremely critical that I pay you on time every month or I’m out of business! I’d have complaints from the better business bureau, the attorney generals office down on me, realtors running around bad mouthing me, evictions and lawsuits filed against me. The attorney fees alone would cost ten times more than what the profit I would make on this! For me to not pay you on time would be a BIG MISTAKE!