Real estate investors have a valuable resource right under their noses, but many ignore it or dismiss this potentially valuable tool without even exploring their options.
The resource in question is your real estate agent. Many investors are too quick to dismiss the real estate agent as not having the best offers, or their best offers are made before the property hits the open market.
While it’s true that real estate agents tend to focus on the retail market, they’re in business to make sales, and that can often mean thinking outside the box for both the realtor and investor.
Remember, the agent not only has sales skills, but will gain valuable information in the normal course of business. A good agent will know which properties are coming on the market, and more importantly, which properties would best qualify for a lease option transaction, as opposed to a traditional direct sale.
And that’s where you, as an investor, come into the picture. If you spend the time and effort helping an agent understand the lease option process, they will soon be coming to you with proposals.
A lease option consists of two elements, the first of which is the lease. This is a contract for the use and possession of the property, thus creating a landlord/landlord relationship.
The second element provides for a purchase option, which is a unilateral agreement in which the seller agrees to give the buyer the exclusive right to the leased property.
It can be a win-win situation for all parties, including the agent, particularly in situations where the seller doesn’t need your equity or doesn’t have any equity in your home.
First, you’ll usually need to educate the agent about leasing options. Select a small number of successful real estate agents, write to them, describing what you are proposing, and then follow up with a personal introduction.
Spend some time networking and getting to know the agent to build a personal relationship. You want to get to a point where the real estate agent automatically calls you if a seller suggests renting their home.
What you’re really doing here is leveraging the agent’s knowledge. Real estate agents contact sellers regularly so they know who’s in trouble, who can rent, and which houses are vacant.
Your relationship with the real estate agent will only grow if they get paid, promptly! No professional operator will wait years to get paid for the work they have done, so be prepared to give the agent a percentage of the commission up front, when the lease option is signed.
If you are a really serious investor, you may want to consider becoming a licensed broker. This allows you to receive a commission and gives you access to a database of comparables – data you need to buy and sell.
Please note that an option is not the same as a regular contract. A regular contract is a bilateral agreement that legally binds both parties to an agreement, while an option only binds the seller.
Lease options are not an agreement to sell like deeds are. They are strictly a lease/lease agreement, which means that if the lessee decides not to exercise their purchase option, the owner will benefit from any market appreciation.
A lease option is a technique that involves gaining “control” of a property, but not the property, just the right to own a property now and purchase that property at a future date on terms you define today.
A lease option is attractive in a situation where the sellers have reasonable debt and can be considered low risk of default. Conversely, sellers with a heavy load of debt have some sort of financial problem and you need to get the deed by either buying the property outright or making the sale “subject to.”
The bottom line is that you need to get this person’s name off the title as quickly as possible or you could get caught up in your mess, especially if a creditor puts a foreclosure on the property and you have to pay before you can take the option. for sale.
Sellers with good debt are motivated by different circumstances: a change in their life, a job transfer, building a new house, etc. They are good prospects for the lease option.
A seller is unlikely to willingly rejoice over the fact that they are in financial difficulty, so it is up to you to always research the title before making the deal to ensure that person is the name on the title and that there are no hidden links. in the title.
Consider this example of when a lease option should be applied. A professional person (such as a lawyer) builds a new house. The old house is worth $250,000 and our lawyer friend owes $150,000, giving him $100,000 of equity.
The lawyer is not behind on his payments and does not need the $100,000 in cash for the new house. The old house is on the market and vacant, but has not been sold. The lawyer can make the payments on both houses, but does not want to make any additional payments on the house.
He/she may be out of pocket each month making payments on a vacant house, but our lawyer friend is not going to hand over the deed and let someone else be responsible for the mortgage, not when he/she has all that principal invested. on the property
As an investor, you don’t want to hand over a lot of cash for the title, so the perfect solution for both parties is a lease option.
Let’s say you take an option on the house for $180,000 and make payments equal to the lawyer’s mortgage commitments. He then sells the property for $220,000 on a 2-year lease option with payments still covering his mortgage payments.
At the end of the term, you make a profit of $30,000, the lawyer hasn’t had to worry about mortgage payments for a couple of years, you get your cash back, and the buyer gets a home they may not have been able to. to afford earlier – a win-win situation for all parties.