Lease Option or Subject 2 - Which is Better?

General Real Estate Investing
21

Alvin,

Here is what you do know, the system you want to practice will work. Forget about what systems you feel do not work as it has no bearing whatsoever on what you are trying to do, this is an excuse if you look at it rationally. In other words do not tell me that Subject To investing does not work, to justify the system you are using, because I know it does and there are many others that will verify this.

Here is the difference, no matter what creative system you choose to practice it all comes down when you are face to face with your sellers or buyers. In your case it looks like you have plenty of sellers, so then it must be there is something wrong with your buyer’s and chances are it is you.

Only from reading your posts am I offering advice as I see it . You do not know how to close a deal, forget those excuses buyers give you, because in your presentation to them you have not answered all questions before they became objections.

When I first started investing, I never purchased a course, still haven’t, hell I did not even know that what I was doing was called Subject To investing. It was a few years later when a student of mine asked why I wasn’t on real estate discussion boards. So I went to a discussion board and found out that what I was doing was called Subject To investing. This is why my course says “Subject To That’s What I Do”, kind of an inside joke really, to those I mentored years ago, before the course.

However, I did buy a book, that has proven to be the cornerstone of how I believe sales should be done and have no doubt that you are bottom line a salesperson in this business. Some may take objection to that statement and dislike the idea of being called a salesperson.

The book I purchased you ask and even if you didn’t I am going to tell you anyway. “Zig Zigler’s Secrets of Closing the Sale” Now I understand Zig did not sell Real Estate, but probably sold enough pots and pans to go to the moon and back. The basics are in his book all you have to do is substitute Real Estate for Pot’s & Pans. I believe you can find his book on Amazon for under 10 bucks.

Very simply put Alvin, learn to “close the deal”, I know you can do it, because of your passion for this business.

John $Cash$ Locke

22

i got that impression from the below quote:

Sorry if I got the wrong impression. I was only concerned that you might be telling people things that you were not 100% sure yet. And even if you tell the homeowner that he should seek tax and legal advice, who do you think the judge would side with if the buyer decides to sue you because he feels you misled him. The investor who even provided the tax code number or the poor buyer who did not know better?

23

defcon,

Let’s just look at the statement you made.

[b][i]im not a CPA but here’s the code IRC163H4D

yes that is the federal code we can to give to a lender in case the lender does call the loan due. [/i] [/b]

All I am trying to say is that the Internal Revenue Code has no bearing on the lender’s ability to exercise its right to call the loan due in accordance with the provisions of the due on sale clause. All this section of the IRC does is allow the homeowner to take the home mortgage interest deduction even though he has transferred his primary residence into an inter-vivo trust.

In a later post you cite US Code 1701, which includes the DOS preemptions specified by Garn-St. Germain. The DOS preemptions prohibit a lender from exercising its right to call a loan due when the homeowner has transferred his property into an inter-vivo trust without the lender’s approval, still remains a beneficiary of the trust, and the transfer does not relinquish or transfer rights of occupancy.

The Internal Revenue Code you cited is not the US Code you cited and each address completely different issues, with the only commonality being that both code cites reference a trust. The two code cites are not interchangeable.

My concern with the trust structure you describe seems to transfer all the rights of occupancy and ownership once you give the resident beneficiary all the tax deductions normally claimed by a homeowner. Once the rights of occupancy and ownership have been transferred, the US Code 1701 preemptions don’t apply and the lender can call the loan due if it so chooses. The lender might not call the loan due – their option – if the loan remains current.

Just how I see it.

24

no problem.

ive laid out a structured presentation whenever i talk to people over the phone or in person. its like telling a story. this is what i do, this is how i do it, here are the risks and pitfalls of a lease option, wrap, contract for deed, equity sharing, sub2, etc. then i go into the vehicle and why we use it. then i end it with benefits or whats in it for them. then its just a Q&A session to give out examples, clarifications, what-if scenarios, etc. thats pretty much it and takes me 20-60 minutes per person. at the end of that, i show them a money trick with $1-$20 bills so they can remember me. =)

i am more confident and knowledgable than before when i first started and as i mentioned, i prefer to educate people first before doing business with anyone. i give those out codes out so they can do their own due diligence and not just take my word for it. TRUST ME, BUT VERIFY. if they dont ask me questions, i prefer not to do business with them because i wouldnt know if theyre getting it or not. i also tell them to seek their own legal counsel or CPA/tax attorney to verify what im doing is legit. then its up to them whether they want to move forward or not. i tell people up front, im not going to pressure them into doing something that doesnt fit their needs or comfort level. i always expect a “NO” from people which allows me to remain unassociated with the end result. makes it easier for me to move on and have that mentality some will, some wont, so what, someone’s willing, next. its all numbers game anyways.

if someone tries to sue me, i have no real estate assets and i prefer to show i dont own ANY. even if i had 50 properties and i own partial co-ownership/beneficial interest/personal property, it wont show in public records since i prefer not to have the deed/title/ownership to any real property. thats why i use gatten’s documentation to mitigate and limit those risks. ive talked to a few agents and investors who prefer to use wrap arounds or AITDs and are giving bogus information to the homeowners and/or buyers. i just simply ask them “good what-if questions” when the poo hits the fan and surprisingly some dont even know the answer and some said they’ll just foreclose on the buyer and go through a quiet title action.

i want people to know that i am honest, passionate and ethical whenever they talk to me in person or over the phone and people are happy that im actually sharing a lot of knowledge when some limit their conversations or just say a few words and make them sign paperwork.
i tell them to feel free to say “NO” to me now and ill wait 6 months later on to decide whether they want to try me out. again no pressure on them. also when i use a non exclusive option, i tell them to feel free to talk to other agents or investors since it wont interfere with what im doing. they love that since its risk free for both of us.

you gave me a great idea. all these tenant/buyers that are contacting me, i will include in my checklist to bring me their CPA’s contact number so i can give them the IRS code and get their interpretation. i will tell their CPA that their client is interested in doing a lease to own, be a co beneficiary of a living, revocable, title holding land trust, sign a triple net lease agreement to lease from the trustee that holds real property and just ask them if this code allows them to benefit from the tax deductions, while leasing, without being on the loan, without being on the legal and equitable title. if the CPA says its okay, great. if the CPA says no, then ill ask why and just go to the next CPA or i wont work with the tenant/buyer. if the CPA says likes what i do, he can probably refer his high net worth clients to me for other properties that i can put under contract. im learning how to fish for whales and leverage their database of clients. networking right?

25

I don’t think you realize you get sued first and then the attorney does an asset search. Are you going to lie if if the plaintiff’s attorney asks if you are the grantor, settlor, trustee, or beneficiary of any trust? There are very simple questions that will either force you to disclose assets or lie? If you get caught in lie, you are all done. Good asset protection doesn’t look like asset protection or relies on stealth. It works when everything is disclosed, which is usually the case.

26

Hi Dave T,

You’re right! I apologize. I type and think quickly. I am a scatter brain with a lot of ideas. My bad.

That IRS code was to answer the question about taking the tax deductions while being a co beneficiary since they’re not on title. It had nothing to do with the DOS.

The federal code I was referring to was the USC 1701 if/when the lender called the due. I understand they can call it and I am prepared to use that code with a written letter. This DOS risk is mitigated - NOT completely eliminated. I understand your points.

In regards to transferring rights of occupancy, a homeowner will not be able to lease or rent out their property otherwise it would trigger the DOS?

Sorry for the misunderstanding.

27

of course i wont lie. if i am “a” beneficiary of any trust, they can put a charging order against my percentage of beneficial interest only. the other two co-beneficiaries (homeowner and resident) has nothing to do with my personal liabilities and i’m not related to any of them so its an arms length transaction. it wont affect the real property since i dont legally own it and i dont have equitable interest in real property. im able to mitigate that risk just as a beneficiary and create a firewall within a firewall. sorry im a computer guy so thats how i understood it.

youre right that someone can sue me against my portion of beneficial interest. i learned that when i found out about land trusts. so lets say the attorney is successful and i lose. the plaintiff would get an unsecured promissory note against my beneficial interest (personal property, personal estate, personalty). the plaintiff “MAY” get paid when the trust is eventually terminated. its a beneficiary directed trust were all co-beneficiaries would agree 100% unanimously on how to direct the trustee. this is how the homeowner and resident’s interests are mitigated and protected. so if the attorney wants to partition the property and get it liquidated for sale, and the two co-beneficiaries disagree, it’s a stalemate. the trustee who’s holding legal title, equitable title, and power of sale, will not revoke or dispose of the property without that unanimous letter of direction from all beneficiaries signing off. The real property would still be a performing asset for the lender and the homeowner.

what if i used an LLC and had 3 partners in there and 1 partner had title and power of sale to real property? the attorney can also litigate against the one member and force a sale

ideally i plan to hold my small beneficial interest in an LLC to limit my liabilities and have a separate insurance/umbrella policy for potential lawsuits like these. also im thinking of putting life insurance policies against the homeowner and/or resident beneficiary in case something unfortunate would happen. again, i want different ways to mitigate and limit my risks otherwise my wife will get pissed at me.

lets say i dont use gatten’s method or any land trusts at all. what if i structured a regular wrap around, contract for deed, or lease option and someone wanted to sue me, how is the homeowner’s property or tenant/buyer’s interest protected from our own personal liabilities? wouldnt the property be exposed to lien attachments? these are the exact questions i had which kept me on the fence because i thought they were too risky. what are the answers to your own question if did these common creative financing?

originally i was studying 1031/TIC (tenants in common) with commercial buildings using a single tenants via triple net lease agreements and i realize that gatten’s stuff is very similar in concept but on a smaller scale in the residential markets. he’s taught me to use commercial type strategies in the residential market. some of these TIC’s are held in a land trust too and the beneficial interest is held inside of an LLC comprised of investors, business owners, insurance companies, hedge funds holding memberships. its the same concept.

i like your good questions. it keeps me on my toes, keeps me thinking and im learning from them.

thanks BLL

28

i snagged 3 whales in 2 days.

1st is a VP/mortgage banker has a bunch of leads and a large database of brokers, attorneys, CPA’s financial planner

2nd is a closing manager for remax who’s dad used to own a title company and understood my land trust strategy and all the benefits and how ive mitigate the risks. she asked me a bunch of what-if scenarios and i passed her test. now im training her on what leads to bring me.

3rd is a FSBO i contacted that has a 1.2M estate. i told him ive never deal with a million dollar property before but id like to test the market to see what kind of high net worth professionals i can get with 10-15% up front cash. i told him id give a full asking price offer with terms subject to his existing mortgage and id split any 10 profit centers im able to create with him. also i told him id give him a 90 day non exclusive option and he has no problem with that. i told him about my trust strategy and he said it makes perfect sense since he’s a private lender. he told me he has 26 properties just like these and he wants me to work on them. i told him i dont know how to use private lenders so he said he’ll teach me. simple 10 minute phone call was during my lunch break. said he wants to meet with me this weekend to give me more business.

i have another whale meeting tomorrow whos a computer engineer like me but is a broker for KW and has a bunch of leads he wants to work using the trust strategy. also said he likes how im able to mitigate the risks with lease options, wraps and contract for deed.

i also talked to a commercial investor who has a plenty of high net worth contacts and wants me to help her friend in las vegas whos a private lender. this private lender took 26 deeds in lieu of foreclosure and she wants me to work with him using the trust strategy. commercial investor wants to go back into residential investing but loved how im using commercial type strategies in the residential market. she also tested me on the what-if scenarios and now she trusts me.

this is soo cool. i think ive crapped my pants.

i have to take john locke’s advice and read zig ziglars on closing the sale.

29

Alvin,

If you go over 45 minutes in a presentation your audience paying attention level to you drops dramatically.

So you start out with a negative in the Buyers mind about investing methods that have nothing to do with the way you invest, or put them on guard by creating negative thoughts in their mind.

Then you invite them to ask questions, because you did not explain well enough how your program works, whereas you should have presented it thoroughly where there would be no questions. Basically this is where you lose control of your buyers.

Now comes the real interesting part where you show them you use slight of hand tricks, planting in their mind thoughts of "I wonder if his program is based on this?

Just some things I see, now I understand why you are not closing deals all those leads and no closings!

John $Cash$ Locke

30

Hi John,

I see what you’re saying.

I have different presentations. I have my 30 second/phone elevator speech. 60 second elevator/phone speech. 5 minute phone speech. 15 minute phone speech. it all varies depending on the questions they ask me and what they want. i can adapt to what they say in person or over the phone.

typically it goes to 30-60 minutes afterwards because theyre asking me questions. i start off with what i do full time in computers and then tell them what i do after my work hours by making properties available for buyers who are looking to take over sub2 or lease to own. nothing about land trusts are mentioned.

the sellers, investors and agents i talk to, are the ones i mostly talk about the risks/pitfalls first, then benefits afterwards.

the buyers, i talk to them about benefits first then the risks at the end. i tell them their 5% is at risk - not their credit since it wasnt needed to get in. and they would lose all the other benefits given to them if they default.

im closing these buyers and sellers since they’re filling up my website forms. the ones i do meet in person i have a higher ratio of closing them and having them fill out my forms. thats not the issue. i just cant close them yet because of the bad payments out there. its hard to find properties with good affordable payments.

if i had a property with good payments and a good mortgage, then i have a better shot at closing. right?

ill shift the risks/pitfalls to the end and see what results i can get.

i still think my problem is finding properties with good payments.

people love magic tricks! especially when i can do it with bills.

sub2’s are great!

“I wonder if his program is based on this?”
if they think this, i dont care, next. they’re probably going to give me trouble anyways.

31

Alvin, if you need to spend more than 2 minutes explaining your offer (to buyers or sellers) so that a 5 year old can understand it, then you are talking to an unmotivated buyer/seller. At that point you’ve moved passed educating and you are fully engrossed in JUSTIFYING. If people don’t get it then forget them, you’ll spend days and weeks answering all their questions only to end up without a deal.

The deadliest question of them all is: “How does that work?” followed closely by: “What’s in it for me?” If a buyer or seller doesn’t quickly grasp the basic concept and see how it can benefit them, then you are wasting your time. No way will you ever convince them otherwise and the more you try the less interested they become.

While the specifics of how you or I or Cash approach this business may differ, it all more or less boils down to this for buyers: “You pay $X per month for X years and then cash out for the balance of $X.” If they can’t understand that then they are too stupid to help.

32

i agree. ive learned alot by making mistakes and learning from others.

i’ll work that under 2 minutes.

33

I personally beleive there are pros and cons to each. Subject 2 is great because you own the home and you can do what you want, but what about those mid-seasoned investors lick myself? I personally can’t afford to purchase every home that is a great deal. For me, doing the option payment with the seller because i have an opportunity to make money with very low risk, and if things don’t work out, i can walk away. So with that being said, it really depends on what you can afford to do. If you can purchase the home, the sell S2, great! If not, L2P is the way to go.