Lease Option Coaching Questions -

Please ask anything else that will help you understand Lease Options relating to this post

Here is a lease option coaching question that I received recently.  When I do my lease option coaching, my students can ask me anything they like about their lease option deals. Some of those I have share on my blog. I hope you enjoy them.  Feel free to comment if so.

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Hello Wendy or lease option coaching staff,

I sent out postcards this week and just got a response from a homeowner who seems to be the perfect candidate for a lease option. She owns a condo town-home, which is my concern. Can this work with condo owners?

Sure IF you are in an area where condos are a "cool" or a "good" thing to own.  I live in the Michigan, and they are not the best here (but a few select areas), but in Chicago they are very hip. A lease option can work with a condo in the right areas.  Consider though who will pay the HOA (home owner association fee) - I would want the seller to remain responsible for this fee. 

Single woman in a three bedroom, three floors town-home. Wants to go to live in Germany part time and stay with her son here in NJ the other months. She has a lower mortgage (has not told me exactly what yet) and is willing to rent, no problem, and pay for the monthly HOA. When I mentioned would she sell she said yes!   She did ask me what I charged to do this and I told her nothing through my company. She asked how I make money then and I told her through the buyer. I also revealed I am a licensed Realtor and that I could charge commission.

The property was built 2003 and she bought it new.

The lady revealed that she has an appointment with a Realtor friend from the complex a few hours after my scheduled appointment with her on the weekend.

Please advise regarding the above. Thanks and I look forward to hearing from you.
What does the seller REALLY want to do?  Sell out right or get some cash flow?  The other important thing when dealing with any home owner that is considering a lease option with you and has suggested that they might list with a real estate agent is that you have them ask their Realtor to "Make YOUR NAME an exclusion to the listing contract".  This is Realtor language to protect the seller and you from the additional fees that would be charged if this were not in their agreement with their agent.  Write this down - as it is the exact language used by most real estate agents in the business.  This way if they don't sell it and you buy it the owner is not responsible for commission.  If they don't put this in there it will affect the seller's bottom line and therefore yours also.

 

Lease Option Coaching -  Feel free to share this post, comment or ask additional questions.   If you are considering lease option coaching check out www.wendypatton.com/wendyreplay to find out more

This blog began as a shot at a little comedy but then I realized it was a good opportunity to help sellers and investors understand how a short sale can become a lease purchase. A short sale presents at least two possible opportunities for a lease purchase. One for the seller and the other for an investor. Actually, for the seller, the lease purchase is an opportunity to avoid a short sale. Let me explain....

The humor in the blog came from a thought that you can learn how long a house has been vacant by looking in the refrigerator. This picture of pizza slices isn't extra cheese. It's petrified cheese from being in a warm fridge for probably 2 years or more. At least that's how long the owner finally divulged.

Now back to our lease purchase lesson.

Lease Purchase When a Short Sale is Slightly Below Market Value

The house I went see about a short sale had been kept up by the owner since it went vacant a couple of years ago. That can make it attractive for a lease purchase because neither the seller nor an investor needs to sink a bunch of money into repairs.

When a seller can't get the lender to approve a short sale they can try a lease purchase. But only if the value of the outstanding loan is close to the current market value or the lease/monthly payment will cover the current monthly loan payment.

I think you see where I'm going with this. A lease purchase it typically for more than market value. Typically about 10% more. So if the house value is within 90% of market value, the seller can use a lease purchase to put a tenant in the house at a monthly payment covering his or her loan payment during the lease phase. When it changes to a seller financed mortgage payment, the monthly payment will still cover the seller's original loan payment. Finally, when the lease purchase balloon payment comes due in a few years, the seller pays off the original loan in full.

There's a possibility this can be done even if the market value is a little less than 90% of the original loan. A lease purchase comes with an above market interest rate. The interest portion of the monthly payment can conceivably make up another few percentage points that the house value is below the outstanding loan.

Investor Version of a Lease Purchase With a Short Sale

The previous example is a creative use of a lease purchase bailing out a seller that can't get approval for a short sale. The investor version of a lease purchase is more common and done more frequently.

It's simply negotiating a short sale for well below market value. This can and is done frequently. The reason is that the short sale costs the lender significantly less than a foreclosure. The lender avoids all of the legal costs. They never take possession of the house so they never have to pay taxes, maintenance, and other associated costs.

There can be a nice profit when an investor buys a short sale and flips it with a lease purchase. Negotiating a below market value short sale and then selling for about 10% above market with a lease purchase can create a nice spread that becomes all profit for the investor. Sweetening the deal is the above market interest rate the investor will collect monthly until the lease purchase balloon payment comes due.

Oh, one more comment about the pizza. When I opened the frig and noticed the power was on and there was a large bottle of Mountain Dew along with the pizza box. I should say the power to the frig was on because there was a light that went on, but the frig was not cold. I did the unthinkable - OPEN THE PIZZA box. What I found was GREEN/YELLOW petrified pizza in there. The funny thing was it was so old it really didn't smell bad anymore. I am still wondering exactly what type of pizza it was originally . I started to laugh and asked if I could take a picture for my blog. The seller thought that I was quite crazy I am sure, but I found it the funniest thing that happened in my day.

Learn to laugh at the small things in life that can keep you going. This business does have some weird things that happen, learn to enjoy them.

 

 

Thanks for reading the blog. Your turn now, please leave questions and comments below.