How do you handle lease option assignments?
You ask a seller if they will do a lease option on their property and they say “yes” or “they may consider it”.
When they find out that you will not actually be living in the property because one of your tenant/buyers will actually be renting the property, the seller will change their mind and cancel the deal.
Is there a way to get around this problem or avoid it when working with lease option assignment deals? Thanks! Peter
Peter,
The best way to avoid this issue is to introduce yourself as an investor first …before anything is discussed.
This way the seller isn’t expecting you to move in or discuss terms as an end/user/tenant/buyer.
A good way is to advertise that you buy AND sell houses. Then when prospects call, they already know you’re not buying for yourself. It’s much smoother.
Hi Javipa,
Thanks for your response.
How do you find sellers or landords that will actually do L/O with you if you are going to assignment the L/O to your T/Bs? Although some gurs say go to Craigslist, I’ve had no success with Craigslist.
I’ve gotten some sellers/landlords to say “Yes”, but once they find out that I’m an investor with my T/Bs…then all bets are off…they change their minds and say NO!!
Peter,
That’s a sophisticated question…
The sliver of prospects that will actually work with us is small. That’s just the case. As a result, we have to be patient as we wade past the time wasters and through the losers.
I had a single lady sign our preliminary L/O agreement (which requires the Deed be put in escrow in our favor), but by the time we got to the scheduled closing date, she had discussed the deal with her relatives and after they all reacted with horror that she was going to sign a deed over to us and leave the loan intact (despite us saving her credit), she got cold feet, and decided to “offer shop.”
Well, of course we had already recorded a memorandum of agreement, which we informed her about, and that stopped her offer shopping. It didn’t reopen the door to us, however, but she won’t be selling this house until after her grandchildren are dead …or the bank foreclosures …or she sticks with the contract …or whichever occurs first.
Recently, another seller got “smart,” after talking with her relatives, and when I asked if she had another buyer, she said, “no.” I then asked if she had some other alternative to so save her credit, and she said, “no.” So, I asked her, “If you don’t have a buyer or another solution to save your house and credit, then why is it a problem for you to put your deed in escrow, so WE can save your credit?” She said, she didn’t “…want the bank to get any more money.”
How stupid is that? She borrows the money, and then doesn’t want the bank to get paid back, because …why …again?
It was TOO much of a risk to give us the deed and leave the loan in place, than it was to leave the loan in place, suffer a foreclosure, lose the house, and screw her credit after she couldn’t find her own buyer?
It’s rare we get this far and experience this, but it happens from time to time. Normally we don’t escrow deeds to houses that are upside down, but the underlying financing was extra solid and marketable to an end/user Buyer.
Of course the real answer was the lady realized we had a potential buyer and were going to pocket about $10,000 from the transaction that she thought was otherwise impossible to pull off …and told herself, “it’s so easy, why not just bypass the middle man and do it myself?”
Meantime, another greedy ignoramus investor wanna bee bites the dust. Thankfully we know better how to put deals together and make this all work despite wasting time with amateur, competitor, wanna bees.
:beer
Peter, all my company does is Lease Option Assignments, and I don’t have any issue with it. If you approach the seller as if you are taking occupancy, but then do a bait and switch, yes, there will be an issue. With all of our marketing and information on our website, the sellers know when they come to us that we aren’t taking possession, but rather, we are finding qualified T/Bs’.
So it’s not an issue at all, unless you market to the sellers in a way that sounds like you are taking occupancy.
When they talk to a real estate agent, they know the AGENT isn’t buying the house, same with us.
I hope that helps!
So when a seller agrees to a LO and you bring in your tenant who moves in and signs the agreement…what happens when the lease expires and they decide they no longer want to lease to own and move on?..who technically owns this house at this point and what kind of responsibility do you have?
It’s an assignment. Meaning you have an agreement first, between yourself and the homeowner. Then, you find a t/b and assign your interest in the deal to them. At that point, you are out of the deal and out of the loop. What happens a year down the road doesn’t involve you.
If they elect to not exercise the Option, then they move out, and the owner will almost always request that we “relist” it with our company.
The owner is never removed from title, as their is no title transfer unless the T/B purchases of course, so the owner still owns the house, just as they would be if they had done a straight rental and the tenant moved out at the end of the lease.
Hi pilot76180,
I contacted sellers/landlords asking them "would you consider doing a Lease Purchase?
If they said “yes”, then I tell them I 'm working with T/Bs who need a nice L/O house.
Many sellers/landlords automatically say they will not sell to investors. I’ve been mainly looking for prospects off craigslist and forsalebyowner.
Should I look elsewhere? How should I approach them if they are not receptive to an investor or someone bringing them T/Bs ??
Thanks,
Peter
My main…well…essentially the ONLY marketing I do is thru direct mail to listed homeowners.
I send a tri-fold brochure and the sellers e-mail or call me for more info.
I think there’s only one spot on our website that even refers to the word “Investor” because of the connotation of it.
So you might find better success if you don’t mention int eh communication anything like “I’m an investor with…” or “Our real estate investment company…”
I don’t know if you do or not, but just a thought.
I market our company to sellers as a great alternative to renting their house.
The 1st choice is to sell for what they want NOW.
The second choice, is us.
Third is renting.
Since choice 1 isn’t working so good, I want to try to tap into that.
I have only JUST begun to market some to Clist, but I find the direct mail is much much more effective for me.
But, keep i mind the cost. I have a bulk mail permit, so I pay about .20 or so a piece, and I mail about 3k pieces each time. I did a video on the mailout process that is floating around the expansive web somewhere. Probably on an adult site or a site pushing free Viagra or something.
I also think that the confidence you express to the sellers when they do contact is what makes or breaks it.
I don’t really do a sales job at all, but rather, gather information from them to see if our program is even a good fit. I get the address, what they owe, if it’s listed, what’s the sales price, then go from there.
When I first started back in the dark ages, I think before Clist even, I tried everything that I read but nothing worked, so I had to develop a system that finally clicked. I also think some things work better in other areas.
Thanks for the info!!
I’ve also noticed that certian strategies work differently in different regions. I’ll tweak and test my approach and marketing see what I come up with.
Thanks,
Peter