My first L/O deal? Yikes!! I need help! (long) - Posted by rayrick

Posted by JohnBoy on January 24, 1999 at 17:39:55:

Ray,

About the scared part. Picture it when your walking up to his door step…contracts in one hand flaping back and forth as if you were walking through a wind storm from your hands shaking so much, wiping the sweat off your brows with the other…leggs are trembling and you feel like they’re going to give…(a word of caution, to prevent an embarrassing moment as the front door is about to open, swing by the market on the way over and pick up some huggies JUST in case!;)) LOL.

Don’t worry, once you get this baby signed, sealed and delivered, your going to be the ultimate high!

Good Luck!

My first L/O deal? Yikes!! I need help! (long) - Posted by rayrick

Posted by rayrick on January 24, 1999 at 08:42:21:

Well, folks, I’ve just uncovered the dangers of starting to cold call on homes-for-rent ads. Someone might actually want to do a deal! Yeeks!

Here’s the situation. I almost didn’t call on this ad because the rent was so high, $2100. Turns out the guy has a gorgeous (and I do mean GORGEOUS) house in a new development that he just bought 4 months ago for 240K. Due to a special family situation, he now needs to move quickly, and thought he’d rent because he couldn’t sell fast enough. He doesn’t need any cash. (is this a perfect prospect or what?) HE even suggested a lease option when I told him I might want to buy it down the road. He’s also a great guy. We hit it off right away.

I explained the details of L/O to him and that I do it as a business and wouldn’t actually be living in his home, blah, blah, blah. He’s fine with all of this.

I meet him last night (thought I should move fast, I had called him in the afternoon) The meeting goes great and he understands everything perfectly (the guy is very sharp).
He tossed out the figure of 230K, but we haven’t really negotiated yet on price. I explained the rent credit to him and it sounds like he might be willing to do 50% for the first year only. He hasn’t asked for ANY cash yet. He’s got to talk it over with his live-in girlfriend (lesson learned: HAVE ALL DECISION MAKERS PRESENT) and we’re planning to meet again Tuesday. He’s fine with only getting his PITI ($2100) for rent.

So here’s the challenge: this is a HIGH rent for my area. Probably above fair market. But the thing is people just don’t RENT houses like this. It’s 3100 sq. ft. and fabulous.

I figure my market for a tenant-buyer is really BUYERS. Folks who maybe didn’t have enough downpayment but have plenty of income and like the idea of building equity faster than a mortgage and don’t have to commit 100% to buying.

So what do people think? Is this too high end? Is the high rent going to kill me (by the way, I might get as much as 90 days to find a tenant-buyer) How much option consideration should I ask for? (the house is MINT) What other terms should I try and get? HELP!!!

Thanks in advance all.

Ray Richardson
aka rayrick

Re: My first L/O deal? Yikes!! I need help! (long) - Posted by Robert

Posted by Robert on January 24, 1999 at 15:59:09:

Congrats rayrick!!

You give us other newbies something to shoot for. Keep raising the bar.

I think JPiper’s idea sounds great. Assign that baby, take your cash and run to the next deal.

Must have been the “Bruss article” (lol).

Keep us posted-
Robert

Re: My first L/O deal? Yikes!! I need help! (long) - Posted by JohnBoy

Posted by JohnBoy on January 24, 1999 at 15:23:08:

Ray,

I think your to nervous to take this deal. Soooooo, let me have it, I’ll take it and you can show the property for me. I’ll pay you $2k after we get a tenant/buyer in there! Ok?? LOL. I couldn’t resist that!

I’m with JPiper on this. Tie that thing up “Subject to you finding a tenant”. Try and tie it up for the 90 days if he will go for it. Otherwise try for 60 down to 30 days if needed to get him to agree with the subject to you finding a tenant. The only thing you got loose is the cost of running some ads.

You don’t need to advertise the assignment. Just advertise the deal as a “Rent to Own”.

Assuming the seller agrees to the 50% rent credit for the first year and sets the purchase price at the $230k to start with, then your option price will be down to $217,400 after the first year.

I’d advertise the rent to own, get $7k - $10k or possibly more depending on your market, (always ask how much then can come with first) and do the assignment deal and be done with it. Take your profit and move on!

If your going to assign the deal then I would advertise the 50% rent credit in the ad to spark a lot of interest. Here’s a sample of an ad that might work for you:

Rent to Own/No Bank Qualifying!
Gorgeous 3100 Sq Ft. Excecutive Home
50% Rent Credited towards purchase
Won’t last / Call xxx-xxxx

I would start out with offering the home at $250K. When you find a buyer with enough down stroke to quench your thurst, sweeten the deal by lowering the price according to their down payment and offer them the assignment.

Example: If they say they got $10k to put down, you can sweeten the deal by saying I can give you the house for $240k with the $10k down. This will lock your purchase price in at $230k with 50% rent credit for the first 12 months leaving you with a balance of $217,400 to buy the house. Plus you can stay for up to 3 years total if you need more time to get financing if you had to. (providing your contract is for 3 years) But the rent credit will only apply during the first year. After all, your assigning your contract over to your buyer so he gets the terms you got for putting up the option consideration as the assignment fee.

Get this baby under contract!

Your first L/O deal… - Posted by Soapymac

Posted by Soapymac on January 24, 1999 at 13:39:41:

Never let it be said that you won’t learn stuff in chunks when you do something like this!

That being said, I will not advise you whether or not you should do this one as a first, although if you do Jim Piper’s suggestion for you is an excellent one to follow.

The question is: where do you advertise for a tenant/buyer(sp?) of the caliber that you need to make this work? Backstep a minute, and pretend YOU ALREADY HAVE THAT BUYER. What is their profession? What professions live in the homes surrounding this one? Would one of their friends want to live here?

What newspapers do those people read? Where do they work? Is there an employee bulletin board at the neighbor’s place of work that would allow YOU to post a flyer?

What about offering the neighbors a strong referral fee if their referral is the one who “signs on” to your L/O?

Where does the type of L/O candidate you want congregate? The golf club? A workout center? The marina? How about the doctor’s dressing room at the local hospital?

Are there any professional buildings in the area that you could distribute flyers/post a flyer?

Just some ideas for marketing that terrific property.

And yes…do keep us informed no matter which way you go. Experience gained is worth sharing.

Cordially,

Roy Mac Lean
"Soapymac"
If you want to e-mail me, remove the “nospam” from my e-mail address.

Re: My first L/O deal? - Posted by JPiper

Posted by JPiper on January 24, 1999 at 12:54:34:

What?? You mean you can actually do lease/options WITHOUT a brochure?? Amazing!

The way I would do this deal is to tie it up immediately SUBJECT TO locating an acceptable tenant/buyer. I would tie it up on HIS terms of rent equal to his PITI payment.

I would run an ad and assign this deal to the new tenant/buyer. If you can’t locate someone, you go down the street. If you can you have cash in your pocket, and NO further obligation for the $2100 payment. You will need an assignment form and a release of liability form.

JPiper

help! - Posted by karp

Posted by karp on January 24, 1999 at 11:29:27:

Ray,

Nice job on the cold calls…makes me wanna say “told ya so…” heh, heh…

So Let’s summarize, you have got a motivated seller, a nice house and wait a sec…what’s missing? That’s Right!

A Tenant Buyer.

So find one. Run an ad. Talk to Realtors. With a house like this maybe they have someone who they know they will NOT be able to find a house for as they don’t quite have the down payment.

You could give them a referral fee if they brought you a t/b.

I would absolutly run an ad. I would also absolutly have an out so you dont have to do anything with this house if you can’t find a STRONG t/b.

He’s fine getting his PITI…Well, no doubt! Figure he is more than fine, he is jumping for joy that someone is going to save him paying an EXTRA 2100 per month OR
$25,200 PER YEAR! Rememebr that is above and beyond his new mortgage or rent payment due to his “special family situation”…

Challenge is this:

You were “WOW’d!” by the huge rent. Others will be as well. I think the MOST I would offer him would be around 1400-1500 per month. Rememeber that is a guesstimate, it may be far less. See, I want to have a decent market for T/B’s if one falls through and to do that I may only be able to command a rent of 1800-2000.
On a deal like this I need to have a good spread.

Now as far as option consideration. Yes, you need to find a BUYER not a RENTER mentality. But Ray, you should be doing this anyway. The fact that it is a higher house shouldn’t strengthen your resolve in that department. You want BUYERS not RENTERS.

Anyway, figure out what it would rent for. Ask around. RUN AND AD. Do whatever it takes. My only negative thought is that he has probably told EVERY SINGLE PERSONE THAT CALLED that he only needs 2100 per month as that is his payment.

IF YOU GIVE HIM THAT, you will now have to ask for an even higher rent than even he was able to get…

AS FAR AS OPTION CONSIDERATION: You better make it high enough. I am talking 5-8K fro your T/B. Is 90 days going to be long enough to make sure you get that?
I dunno.

There is anopther alternative here you may want to consider…You may want to work him on the price, see how much af a loss he can take. Then, you may be in a position to just ASSIGN this L/O to another buyer and be done with it.

Kick it around and…

Keep us Posted…

karp

Re: My first L/O deal? Yikes!! I need help! (long) - Posted by phil fernandez

Posted by phil fernandez on January 24, 1999 at 11:26:57:

Ray,

What happens if you sign onto this lease option deal and you can’t find a tenant buyer. Or if you do find a tenant buyer, they get in the house and stop paying the rent. The $2,100 payment you pull out of your pocket each month until you evict them can eat you up.

I would stay away from high end lease options. Too much risk. Lower your risk by lease optioning houses in the lower price ranges.

Re: My first L/O deal? Yikes!! I need help! (long) - Posted by rayrick

Posted by rayrick on January 24, 1999 at 15:41:22:

Love it, Johnboy. You guys are the best! Where would I be without you! Okay, I’m gushing, but I couldn’t restrain myself.

Now, after all this I’m probably going to call him Monday night and he’s going to say, “Actually, Nah…”

Still you can’t beat real situations to boost you up the learning curve! Thanks again all.

-rayrick

Re: Your first L/O deal… - Posted by rayrick

Posted by rayrick on January 24, 1999 at 15:36:33:

Thanks soapster, for all those fine suggestions. I already got a tip that my local business news is a good place to advertise for a high-end buyer. And that area is crawling with country clubs. Fine idea. I’m printing your message now.

-rayrick

Re: My first L/O deal? - Posted by rayrick

Posted by rayrick on January 24, 1999 at 15:33:49:

Thanks, Jim. I like your approach. I don’t want to offer him way less than his PITI, since I’ve already given him the impression that I could swing that. By the way, my brochure came in handy! As I mentioned, I made the mistake of not having all decision makers present but instead of having to rely on him accurately relaying the info to his girlfriend, I could give him my brochure. Also, he asked for a card and mine isn’t even printed yet… BUT I HAD THE BROCHURE! So, hey, it worked for me.

So let’s say for the sake of argument that I’ve got a deal for a selling price of 230K (FMV 240K), $2100/mo rent and 50% credit the first year, and I want to assign it (and I do have the form). How would you advertise it exactly? How much of an assignment fee would you look for? If I wanted, say 7K, would I advertise it for 237K and tell my assignee that I need 7K to step into my shoes? And what catchy phrases do you like in an ad?

Rent-to-own! Move in now, qualify later. Build equity faster than a mortgage…

Stuff like that? Finally, if the seller’s really nervous about tieing up the house when all our agreement says is “subject to” would you offer him ANY cash? Or let him leave his rental ad in?

Thanks a bunch. I’m scared, but I’m having fun!

Ray Richardson
aka rayrick

Re: help! - Posted by rayrick

Posted by rayrick on January 24, 1999 at 12:45:22:

You DID tell me so about the cold calls karp. Thanks for the encouragement! But I also told you that I’d feel more comfortable being upfront about my intentions fairly early in the process and this time, at least, it actually worked, even over the phone. Beginners luck, I guess.

So you really think I should offer him well below his PITI, so the guy is coming out of pocket? I thought this was a big L/O no no. The guy is clearly loaded, so it wouldn’t kill him, but man, he’d have to be pretty sure he couldn’t rent it for the full amount to go for it. I called on the first day of the ad and he’d gotten two other calls. So perhaps the rent is not THAT outrageous. I’ll be interested to see how much interest he’s gotten in the time between our meetings.

Now, you say run an ad. Now? Before Tuesday? Try and get one in tomorrow’s paper? Uh… I’d have to hustle, but I suppose it could be done. And I could call some realtors, for sure.

Perhaps I’m too hung up on what a nice house it is. I talked to a builder on Friday (I was trying to work the Jim_NC angle with him…) and he said that he NEVER rents the swanky houses he builds in this same area because he can sell them almost as fast as he can build them.

The assignment idea is interesting but scares me. How do you find people to assign it to? Same way, I suppose- just advertise. So you think you need to have a pretty big price discount to make that work? How big is big?

And what’s your feeling about rent credit? What would you try and negotiate on a house like this?

I’m scared, man. Maybe Phil and Laure are right. I should go back to the hole I crawled out of. Too risky for my first deal. But it’s hard to give up the potential return. Heck, even a 10% spread on a house like this is 24K! That would already exceed my goal for my entire first year!

Well, got to run. I’ll check back later. And I’ll DEFINITELY be in the chat room tonight. Hope to see you there!

-rayrick

Re: My first L/O deal? Yikes!! I need help! (long) - Posted by Laure

Posted by Laure on January 24, 1999 at 11:41:32:

I agree with Phil. I bought a commercial property in 1988 well below market. Had Tenants with letters of intent. My payment was 2300/ mo. The guy went bankrupt after 15 months and a new building was built half a block up the street , so it was more difficult to fill my space. I ate those payments for almost 2 years before re-renting it. OUCH ! I stay more conservative now.
(I did just sell this building and made a tidy profit)
Laure :slight_smile:

Re: Your first L/O deal… - Posted by Nick DeMatteis

Posted by Nick DeMatteis on January 24, 1999 at 22:17:16:

Rayrick, Another idea that might work. Go into the local town where the house is located and talk to the people in the merchant shops they see a lot of people that relate to area and properties. Leave your card or flyer discribing the house. Good Luck! Nick DeMatteis