To Michael Morrongiello - Posted by sherry

Real Estate Investing
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Posted by Nate on January 13, 2001 at 22:08:52:

I think that’s a better idea than letting the tenant know what the situation is. If the tenant/buyer is at all savvy, when you come to them saying they can get a discount if they buy NOW, they will figure out that the owner needs cash now and will squeeze him for all they can. Why should they pay $85,000 when he might let it go for $60,000 or even $70,000.

Whereas, if you buy out the owner, then you don’t have that problem. I guess your question was, how to finance it. Why not simply buy the house from the owner and finance it conventionally or with a hard money loan? If you are buying that far below FMV, you will make a profit, and you don’t even have to find a tenant/buyer, as there is already one there for you!

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To Michael Morrongiello - Posted by sherry

Posted by sherry on January 13, 2001 at 07:32:11:

Can a lease option be sold? Is it a viable “note” to a broker or buyer of notes?
The reason I ask is ,if I have a seller who is reluctant to lease option his property to me,can I tell him he only has to agree to this until closing at which time he is paid in full.My intention is to get a buyer,create financing(at note buyers terms) and sell note at closing.
My guess is that no one knows if the buyer will actually exercise his option making this a risky buy.
Am I correct?

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Re: To Michael Morrongiello - Posted by Bud Branstetter

Posted by Bud Branstetter on January 14, 2001 at 22:43:53:

While a national note buyer is reluctant to buy a local investor may not be. What it is worth is still the question. The cash stream is only as good as the occupant and can not be enforced against the property like a lien could.

The sell the note route while it sounds great is always to the advantage of the buyer. The LTV’s are generally lower and the rates higher than getting a B/C lender involved. Some cases the note may be the easiest route. Other times it will not be.

It is most likely that the seller does not want to wait for you to find a buyer and is not willing to discount sufficiently to allow a note deal. If he is willing to wait to get his cash but wants more of is equity the L/O or Pactrust approach works. The Pactrust works better because the property will be sold a FMV if the occupant does not buy. An occupant can be found faster because you can give them writeoffs. An investor can be found because of the known equity position and certainty of a termination date.

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Options, notes, etc. - Posted by Michael Morrongiello

Posted by Michael Morrongiello on January 14, 2001 at 20:13:28:

Sherry:
Typically one cannot not sell the income stream generated from a lease option. Certainly you can sell the rights to the option itself however.

One of the main issues I have with selling a property using a lease option type sale is the tremendouse UNCERTAINTY that you mentioned. I understand that over 50% of the prospective buyers do NOT end up purchasing the property they have optioned to buy. Essentially this means that you anticipation of “cashing out” a year or two from now by counting on the tennant buyer concluding his/her purchase is tenuous at best.

Wouldn’t it make more sense to simply “roll over” a prospecitive lease option buyer into a SELLER FINANCE Private mortgage after they have demonstrated that they can make the rental payments timely for a period of time (12 months or more)?

At least this way you can better control the and even assist the tennant buyer to conclude their purchase and cash you out.

Now conceptually this may sound easier than it appears, however with some attention paid to the following issues, this is a great way to terminate your lease option sales and assist yourself and your buyer.

How much cash down, or rental credits have been built up?

Has there rental payments been similar to what a mortgage payment would be in the sub prime marketplace?

What is the buyers credit like, credit scores, employment, stability, etc.?

Do you have sufficient equity or “spread” in the deal between what you may owe your seller, and what your tennant buyer owes you?

We have purchased numerous seller financed notes that were created by a frustrated seller who thought they were going to be paid off under a lease option purchase agreement only to find out that the buyers could not finance the sale to conclude their purchase. By “rolling” these tennant buyers into a seller financed scenario, it allowed the buyer to conclude the purchase, the seller to cash out their equity, and to terminate the uncertainty of the future.

Just some thoughts to consider…

Michael Morrongiello

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Re: To Michael Morrongiello - Posted by phil fernandez

Posted by phil fernandez on January 13, 2001 at 08:26:17:

If I’m reading your post properly, there would be no reason to even get involved in a lease option deal here. What you are trying to do is obtain a straight option to buy or a signed purchase and sale agreement with your seller.

Once you have the property locked up, you will want to market it owner financing and sell the note to perhaps Mike at the closing table with your buyer. Mike buys the note, cash goes to your seller and the remainder goes to you.

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Re: To Michael Morrongiello - Posted by sherry

Posted by sherry on January 13, 2001 at 09:43:53:

Thanx Phil,I can handle that, but what about existing L/Os.
What if I run into a seller who L/O their house to their buyer but now they are in NEED of their money?
Can anything be done? Sellable?
Thanx

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Re: To Michael Morrongiello - Posted by phil fernandez

Posted by phil fernandez on January 13, 2001 at 18:17:22:

Don’t know how salable a lease option as you propose would be. But just a quick thought. Suppose the seller has lease optioned his house to a tenant/buyer for $90,000. The FMV is now at $100,000, but the tenant/buyer doesn’t have to excercise his option for two more years. Yet the seller needs cash now. Could you not work your way backwards and tell the seller that if you could get him $70,000 now would he be interested. Then go see the tenant/ buyer and tell them that if they excercise their option now you could get them the house not for the $90,000 originally agreed upon, but if they act now you could get them that house for $85,000. The difference of the new prices of $85,000 minus $70,000 that the desperate seller would take at this time for cash is $15,000. Who would get the spread of $15,000. You for engineering this deal.

Of course this comes very close to you practicing as a realtor without a license so I’ve got to think further of the details.

Hmmm.

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OK How Bout Stepping In For Seller - Posted by phil fernandez

Posted by phil fernandez on January 13, 2001 at 18:21:07:

If you could buy out the seller’s position in the lease option agreement, that might work. Then you would be a principle in the deal so no licensing problem.