Sub2 or Lease-Option for Multi-Family Property

[envisionary]

Hi everyone.

I’ve been pouring over this forum and its resources for the last several days and have quickly found a wealth of information. Naturally, I’m drawn to the info on subject-tos and lease-options (who wouldn’t be?). I’m hoping to get some further insight.

As far as investment purposes go, I’m looking toward commercial and multi-family properties and all have good tenant occupancy & cash flow. I’ve considered all kinds of seller scenarios and am trying to develop a pro-active approach to situations, questions, and objections. This is where I’m hoping to get your input & suggestions.

• Is there ever a situation where the seller is in good shape financially who would be selling one of these properties (maybe he’s tired of dealing with a property, spouse is sick, etc.)? Would they be the better candidates - if they exist - for one of these deal structures?

• Can these types of deals be used with someone who needs to get cash out now? Could you structure monthly payments in a way that they would be appealing in this type of case?

• Which are the MOST appealing reasons for a seller to want to go for one of these types of deals?

• If one of these larger properties is listed through a realtor, what are some ideas for handling those associated fees in this type of transaction but deferring the payments?

I’ve gotten a couple of Peter Conti resources and a book recommended here for Subject-To Investing. Still, I’d love to hear some other thoughts and suggestions. Anyone?

[javipa]

Taking over payments and getting the deed is NOT the same thing as a lease option. They are two different animals, two different liabilities, to different solutions, two different rationales for using. One is a financing tool, and the other is an option tool.

@envisionary post:1

I’m drawn to the info on subject-tos and lease-options (who wouldn’t be?). I’m hoping to get some further insight.

As far as investment purposes go, I’m looking toward commercial and multi-family properties and all have good tenant occupancy & cash flow.

Those are not hard to find. :biggrin

• I’ve considered all kinds of seller scenarios and am trying to develop a pro-active approach to situations, questions, and objections. This is where I’m hoping to get your input & suggestions.

That’s smart.

• Is there ever a situation where the seller is in good shape financially who would be selling one of these properties (maybe he’s tired of dealing with a property, spouse is sick, etc.)? Would they be the better candidates - if they exist - for one of these deal structures?

Not likely.

• Can these types of deals be used with someone who needs to get cash out now?

No.

Could you structure monthly payments in a way that they would be appealing in this type of case?

Depends on the seller.

• Which are the MOST appealing reasons for a seller to want to go for one of these types of deals?

Splitting hairs here for a sec… You give the seller reasons to do the deal the way you want, not the other way around. The seller just has to be motivated to accept one of your reasons for doing a particular deal with you, the way you want. You always want to ask the seller what he’s trying to accomplish in the sale of his property. Sometimes, it has nothing to do with needing money. These are the better prospects. For the sellers that need money for this, that, and something else, you’ll have to dig deeper and find out how much they need, and if they’ll accept the rest later (in payments, lease/option, or whatever)

• If one of these larger properties is listed through a Realtor, what are some ideas for handling those associated fees in this type of transaction but deferring the payments?

[b]Trying to do creative financing through an agent, is like giving a horse an enema. You can explain the mechanics to the horse all day, but when you stick the hose up the horse’s butt, you’re gonna get kicked. It’s even worse with “sub2.” Agents are a blood clot to creative financing. Agents want to get paid now, not later, and they don’t want to get wrapped up in long term deals. Stay away from them.

Furthermore, buyers that need to be creative, are usually the same ones that can’t afford to put enough cash up to both pay an agent fee, and give the sellers enough cash to spend.

For creative deals, you need to be in front of sellers directly. Again, agents have zero motivation to help you transact lease/options and wait for their money, or never get it, after messing with the deal for several weeks or months… and you will absolutely have no LUCK completing a sub2 transaction through a Realtor, because the liabilities to them are too great to assume.[/b]

• I’ve gotten a couple of Peter Conti resources and a book recommended here for Subject-To Investing. Still, I’d love to hear some other thoughts and suggestions. Anyone?

[b]Doing lease/options on multifamily residential or any commercial property is probably going to mean you’re actually going to engage in what’s called a “Triple Net Lease (with an option to buy).” Triple net means that the tenant pays for all expenses related to the operation of the property, as if it was the owner.

Finally, there is no one motivation I’ve found that a seller would want to do a lease/option or sub2 deal. The common denominator is that you are solving a problem for them. So you need to find a seller with a problem that can be fixed using either sub2 financing, or a lease option offer, if that’s the two choices you have.

One last thing… get the word out what you do, to a specific niche of sellers; that have what you want to buy; and make your name and offer familiar to the prospects, so that when it’s time to sell, they’ve already decided to sell to you “on terms, fast.”[/b]

“I Buy Apartments Fast On Terms” Call Envisionary Today at (500) 112-3456.

[b]Have some fun with it!

Jay

P.S. I’ve given you some cut and dry answers here, and there’s always exceptions and nuanced answers I could give, but to save you a bunch of confusion I just cut to the chase.[/b]

[AJ290]

I think the answer depends upon the investor. What is your acceptable risk level in a deal? What is your financial backup if the deal doesn’t go according to plan?
Generally, a lease option is much less risky and a better match for the new investor, and so is probably a better and easier way to get started.

[envisionary]

Thanks to you both. After everything I’ve read on reiclub, I felt like the lease option was the best way to get started but very much appreciate hearing that it is.

javipa - with regard to the real estate agent, I was really hoping to communicate with the seller directly while keeping the listing agent’s fees in mind as far as extra costs that would have to be factored into the deal. I’m trying to figure out if there would be a way to defer the payment of those fees until a later date? But then again, if you are leasing, whether lease option or lease purchase, the listing agent wouldn’t get their fees until that sale actually took place, correct?

Another question… in your experience is there a “typical” seller of commercial or multi-family properties? I know that every situation is unique, but do there tend to be common denominators that might be unique with these particular sellers?

I’ve also been giving thought to your recommendation on getting the word out to prospective sellers. I’ve got my list of places to advertise and some listing made but I wanted to make sure I was on the right track first.

[javipa]

Thanks to you both. After everything I’ve read on reiclub, I felt like the lease option was the best way to get started but very much appreciate hearing that it is.

javipa - with regard to the real estate agent, I was really hoping to communicate with the seller directly while keeping the listing agent’s fees in mind as far as extra costs that would have to be factored into the deal. I’m trying to figure out if there would be a way to defer the payment of those fees until a later date? But then again, if you are leasing, whether lease option or lease purchase, the listing agent wouldn’t get their fees until that sale actually took place, correct?

Yes.

Another question… in your experience is there a “typical” seller of commercial or multi-family properties?

Yes, they all want money.

I know that every situation is unique, but do there tend to be common denominators that might be unique with these particular sellers?

No, except they “all” want money.

I’ve also been giving thought to your recommendation on getting the word out to prospective sellers. I’ve got my list of places to advertise and some listing made but I wanted to make sure I was on the right track first.

[b]Forget over-thinking about why any particular seller wants to sell. Just get the word out what you can do, and the sellers will tell you what their motivations are. If they won’t tell you, then they’re not motivated.

Meantime, here are 3 motivators…

1. Higher than normal vacancy factor due to bad management which includes anything that causes higher than normal vacancy factors.

2. Landlord is fed up with management; not realizing how much work it is; can’t afford 3rd party management for a variety of reasons.

3. Landlord has partnership, marital, financial, or health problems that can be solved by getting rid of the property.

Hope this helps.[/b]