Need Option Papers and Ideas

General Real Estate Investing
1

A lady is selling her house and has agreed to give me the option to control the house with no money down for 90 days. I plan to use the option and resell the house owner finance for 78k. I don’t know if this would still be considered a lease option since I am not purchasing the option, and the only money I will be paying is the payments which are 582.53 until I get the house sold. She is already 2 payments behind and wants me to pay that as well. Oh yeah, she wants 3000 for her equity when I sell the house. I plan to onwer finance and turn around and sell the note as a simotaneous closing, hopefully getting 90 cent on the dollar. Can anybody direct me to where to find the option paperwork I need to make this deal work. Here are the details.

Selling price: 60,500.00 she wants 3,000 in 90 days after I do the simo
Underlying lien: 57,500 is what she owes the bank on the property.
FMV: 78,000
Repairs: none

If anybody has any other suggestion it would be appriciated. Again I also need to find out what form to use on the option.

Thanks,

Jason

2

Jason,
Where’s the beef on this one?

Between paying more than 80 cents on the dollar (arrears, equity buyout, marketing, etc.) and taking a large discount for a table funding, I don’t see much left.

The note will be almost unseasoned and your buyer will have poor credit. Otherwise, the buyer would just get a new loan. Therefore, you would likely have to structure the deal as two notes so the note buyer will be at an acceptable risk tolerance, or take a larger discount.

What happens after you install a buyer and the seller decides not to sign the deed? She’s currently at risk of losing her property and she wants you to pay the arrears and pay her some for her “equity”?

I would strongly suggest that the way you’ve laid this out is not a good decision. There are way too many variables completely outside your control that can blow up in your face. I haven’t a clue as to what suggestions to make since I don’t know your experience level, your location, or the resources available to you.

Asking for the option paperwork leads me to believe you’re fairly new. If so, my recommendation would be to not combine multiple creative strategies into one deal until your knowledge level increases.

Why not just take a simple option and see if you can sell it retail?

3

with Tim, on the multiple strategies thing… when you first start out…

You have to go for cash in the beginning and lining up the stars is sometimes the only way…

Ok, first off… a properly worded contract to buy can serve as an Option…

You make it so you have ways out… contingencies…

She should be givng you the property to save her credit… Not trying to pull another 5k out of your pocket…

Now that said…

I like your simultaneous close idea… You realize you need generate cash…

Problem is a couple things… (not to dissaude you, but to help)

Most note buyers nowadays want to see the same ficos that with the same person you could get them into A paper… they want 600 plus ficos…

On the otherhand… because they take sever discounts in some cases they can move faster…

They aren’t going to buy above an 80 - 85% ITV (Investment to Ratio)… that means they will not invest there money into the property about above the 80 - 85% ratio… So In your case… that’s 78k times 80% (85% in some cases with some buyers) Or $62,400.

You are offering the lady 60,500 for her property… Plus making payments of $600 for three months plus paying any arrearages…

So, saying you don’t get the property sold for the whole 3 months… You’ll have to catch up 5 payments… or 3k… that’s a total of 63,500…

Your numbers will look like this… in the end…

$78,000 ( Sales price)
$3900 down (5% Down - minimum)

$74,100 (Sell your note @ 90%)

Leaves you with $66,690…

And gives puts them in at an 85% LTV…

They may require more a discount or for you to carry back some of the paper…

So, You agree to carry back the paper and they buy at a higher %…

It would go something like this…

You take 62,400 (80%) divided by .95… the percentage your notebuyer is willing to pay at an 80% ITV for them…

That gives you $65,684…

So you would structure it like this…

78k Sales price…

$3,900 down

$8,416 Second Note (pretty much worthless)

$65,684 First, sold for $62,400

So, Cash to the table is…

62,400 plus $3,900

$66,300 minus…

$57,500 Payoff
$ 3,000 You promised her
$ 3,000 In Payments, arrears and due till close…

That’s $63,500 and leaves only $2,800…

That doesn’t include any late fees, attorneys fees… etc, etc…

Not to mention your not protected… If you don’t get it done… You lose money…

You should be buying this property with No money outta pocket…

Now if you want to add another twist… Go the short sale route…

Don’t make any payments… and then you might have a deal…

Or just buy it subject to… give no money and go down the road and rent it , sell it, or owner finance it…

In this climate… In Texas… Your emphasis need to be on finding buyers…

David Alexander

4

First off Jason,

Getting an option form is easy.

Of course easy if you’re experienced.

Take a very good purchase contract or earnest money contract and include a right-to-terminate clause, i.e. and opt-out clause. So instead of having an option to buy you have a “real contract” with all the particulars and contigencies and outs that you want PLUS

“the Buyer has the unconditional right to terminate the contract anytime prior to the closing date for the unrefundable option fee of $XXX. If an option fee is paid then the Seller/Optionor agrees that sufficient consideration has been paid and no earnest money or other deposits are required.”

I’m not a lawyer and this is not legal advise but business advice only. Go see a lawyer. Make the option fee small/adequate. Ask your lawyer if earnest money is required if an option fee is paid.

Hope this helps! Good luck. I’ve had deals that look worse than yours on the surface work out OK for me.

Al Kartaltepe