I have read and researched non-exclusive lease options but don’t know why one would be beneficial. Just to clarify that I am understanding them correctly a non-exclusive option 1.gives the seller and the buyer the right to terminate the contract and 2.gives the owner the right to sell to someone else when the lease period is over.
Why would and investor be interested in this? Please explain!
Geoff
Theory: #1 is right, #2 isn’t. A non-exclusive lease option gives the seller the right to sell to someone else before the lease begins.
Practice: The way I do this is I make the contract subject to me finding a suitable T/B within 30 days, during which time the seller also has the right to cancel if they get a better offer.
im using 90 day non exclusive options and seller’s are much more receptive than signing an exclusive listing agreement for 6 months or signing an exclusive option agreement with an investor who’s going to record the option to cloud title.
i tell the seller that this non exclusive option is non binding and it wont interfere with their FSBO or exclusive MLS listing. if they find a conventional buyer before me, then i withdraw my option and they proceed with the conventional sale. if i find my tenant/buyer before my option expires, then i will exercise my option and proceed with the purchase offer. its all contingent upon finding my tenant/buyer. also i give the seller’s more than their full asking price if they are willing to agree to my non exclusive option agreement.
some say NO but who cares. its all numbers game anyways
Defcon, how much above their asking price do you offer? I presume you are then charging your T/B even more?
yes sir. you’re correct. i charge premium terms since the T/B is entitled to the tax deductions while leasing and i do an equity share with homeowner and T/B
im in southern california so this is what ive been doing
lets say:
loan balance is $500k
fair market value is $425k
my full price offer is $505k
mutually agreed value for T/B is $530k (5% premium on top of $505k)
so the $500k loan balance is the first to be paid off. banks get paid
$5k is due to the homeowner in 7-11 years when the property is sold or refinanced.
so the $25k spread is due to the investor in 7-11 years when the property is sold or refinanced. i split that $25k with the homeowner.
i just laugh whenever the homeowner says “NO” to my full asking price offer and 90 day non exclusive option. i guess they’ll say yes to a low ball offer and an exclusive option that i should record and cloud their title.
Thanks everyone, that really clears things up for me.
Geoff
I’ve searched but couldn’t find any information on writing up a non exclusive lease option contract. I’m meeting with a client and need to write up a 90 day non exclusive, yet where can i find the form? or what does a typical one look like so I can write up my own?
Really?? I never knew this. Is this nationwide? What are they entitled to write off, the entire lease payment? Can someone point out or explain the rule on this?
Another good “selling” point if this is indeed the case.
this will not work for your traditional lease option. this IRS code that i have pertains to the tenant/buyer being a co-beneficiary of a land trust. without the land trust, then the tenant/buyer will not be entitled to the tax benefits unless you compromise the title by adding them doing a wrap around or all inclusive trust deed which is a different method.
again this IRS code will not work with your regular lease option. its a specialized strategy and much more complicated.
I see. You take the deed in a land trust and put the tenant-buyer as co-beneficiary. Never thought about doing that. Thanks!
no. we transfer the deed to a trustee. deed will never be placed into a land trust because that will be considered a dry/failed trust which can be pierced easily.
deed goes to trustee
property goes inside of the land trust.
tenant triple net leases from the trustee who has the deed (true owner of real estate)
investor collects positive cashflow based on a simulating a sandwich lease option or double wraparound.
again its complicated but it gets easier when you understand the mechanics. its not for everyone