MichaelC

Hi, Joe. Technically, you are right when you state there is a difference between a lease option and a lease purchase. Notice I emphasize technically. The reason I do so is because in the real world there isn't. I mean, if someone wants to say that a lease purchase agreement obligates a tenant/buyer to purchase the property, that's fine and well. But, someone needs to explain to me what happens when that tenant/buyer elects not to purchase the house. Let's say they simply change their mind. Or a great but unexpected job opportunity arises and they'll be moving across country. Or they were unable to qualify for any financing. What happens then? Sure, a homeowner can sue, but then what? They win an uncollectable judgement, and they are out the additional legal fees and court costs. Nobody wins. So, personally, I use lease option, lease purchase, and rent to own interchangeably. I am not an attorney, so if there are any out there who want to take me to task for my opinion, I'd welcome it. My experience has been that making payments direct to a bank will probably not trigger the DOS clause. Truth is, with thousands of payments arriving daily, the clerks handling all this paperwork are simply processing it all, matching a payment to an account number. Is is possible it might happen? Of course, and the people involved in the deal need to be aware of this possibility and be prepared for it should the unlikely occur.

Overall, my experience with the various internet sites has not been overwhelming. Usually, the listings are outdated and old. However, I am told by a few students that the websites have improved over the past year or so, and the sites are generally better and more worthwhile as far as looking for deals. That said, I think any of us would be remiss in not using all potential sources of locating motivated sellers for a lease purchase deal, including the internet. I simply shoot a quick email that states something to the effect, "Mr/Mrs Homeowner, My name _________. I saw your property on (name of website) and I was wondering if you'd be interested in selling on a lease purchase? If so, please contact me at XXX-XXX-XXXX" Simple and direct. Here is one example of a deal I located on the 'net.

Hello, Andrew. I can't say that $5K option money is the "norm". I've accepted less when necessary, and I've been surprised and been offered more than I expected, (as I mention in my book, Andrew, the value of keeping quiet :ph34r:). While I say that the equivalent of three to six months rent is my target amount of option money, the marketplace ultimately tells you what to expect. If you have a property for Rent to Own, and all your prospects are offering in the $2000 to $3000 range, you'd be wise to listen. My philosophy is do the deal quickly and with as little aggravation as possible. Then, move on to the next one or two or five. There's profits in volume, much more so than holding out for an additional $1500 or so. Also, another factor in how much option money you might receive is determined by the value of the property. Obviously, a $500,000 property will garner more than a $150,000 property.

Andrew, the agreement we use specifically states that both option consideration and rent credits are credited toward the purchase price. They are not applied as part of a cash downpayment. I cannot stress enough how important it is to make this distinction clearly understood to your tenant/buyers. As to whether or not you can still be sued by a tenant/buyer, the answer is we live in a very litigation happy society. So, sure, someone can try and sue you. Whether or not they are successful depends in great part upon the wording, strength and validity of the contracts you use. Should a tenant/buyer go and try and sue, not only do we have good contracts backing us, we also have a paragraph stating that in the even of a lawsuit, the prevailing party also has the right to collect attorneys fees and courts costs. You'd be surprised at how this can also contribute to someone thinking twice about filing a frivilous legal action against you.

Dave, astute observation. One of the things you need to be certain of is that you never say that rent credits will be applied to the down payment. Instead, they are a credit toward the agreed price. Much safer to do so this way. If, say, $10K in rent credits were earned, then a $170K purchase price is reduced to $160K. Simple and straightforward.

Hello, Howard, and welcome to The Naked Investor. I have heard that argument about rent credits made numerous times. And while I do not discount it entirely, I will say that in my personal experience the amount of rent credits offered, the amount of rent credits accumulated, are a moot point if the option to purchase is not exercised. Much depends, I believe, upon the contracts you are using and what they say specifically. Again, I answer this as someone who is not an attorney but, rather, base my answer on my experiences as a lease purchase investor.

Hello, Ken, and welcome to The Naked Investor. I must admit to complete ignorance on this one. Is Virtual Tours that program you see on realtor sites that give the viewer a walking tour through a property? If so, it is a cool tool, indeed. Maybe someone, (any realtors out there?), will have some info and share it with us.

The rent credits have no relationship to the underlying mortgage. Rather, I view them as an effective marketing technique. Advertise a Rent to Own with a 50% rent credit, (or higher), and listen to your phone ring off the hook! What the rent credits affect is the spread, or profit you have left on the table at the close when, and if, the tenant/buyer exercises their option to purchase. If you lease purchase a property from the homeowner for, say, $150,000 and then turn around and sub lease purchase the same property for $169.000 you have a $19,000 spread. Right? Now, you market the property with a 50% rent credit and quickly find a tenant/buyer. Let's say the numbers in this deal are such that at the end of twelve months the rent credits total $7,200 ($600 per month times 12 months). This simply means that $7,200 is credited toward the agreed to purchase price of $169,000. The balance owed you is now $161,800 (less whatever option consideration was paid at the beginning of the lease). Does this make sense, Michael? As far as the monthly payments go, you have a locked in term with the homeowner that was negotiated upfront. That doesn't change and the rent credits are irrelevant to that. You do not give rent credits back in the form of cash each month, nor do they need to be stashed in an escrow account. They are simply a credit toward the purchase price if the option to purchase is exercised.

Hello, Matt, and welcome to The Naked Investor. Hope you become a regular contributor here! I agree with your take on speaking with a seller. I always stress to newbies in this business that the best approach is to be nonadversarial, and to be quiet. Your approach is the same and by doing this we "force" the homeowner to talk and, in the process, reveal the true reasons for their motivation, or lack thereof. Talk less, listen more, and we're better able to understand and meet the needs of the homeowner.

Hello, Michael. Yes, my course covers how to find prospective tenant/buyers. You will find that, generally speaking, finding tenant/buyers is the easier half of the equation for putting together a successful lease purchase deal. A few small and inexpensive ad or two, well worded, will have your phone ringing like you are the greatest thing since canned beer. Newpaper advertising is just one way. There are several other methods, also, to assure that you always have a steady stream of tenant/buyers for when you have properties under contract.

Dave, yes, the option of collecting a security deposit in addition to option consideration is one that is available to you. In fact, there are those who say doing so helps your cause if a tenant/buyer takes you to court and tries to claim an equitable interest in the property for any reason. The argument is that if someone gave you a security deposit then that would indicate they are tenants. (Let me also say here that I have never had a legal action against me by a tenant/buyer. As such I have never felt the need to cover myself as described above.) The other issue with collecting a security deposit is that it sometimes is not practical. If a tenant/buyer gives me, say, $5000 option consideration plus the first month's rent prior to possession, it can be difficult to collect another $1000 or $1200 security deposit on top of that. At least that has been my experience. If you can collect it, more power to you. If not, you're running about normal. You're right that renters associate a security deposit with their possession of a rental. However, I make it my duty to let them know they have additional responsbilites as a tenant/buyer, but they also receive benefits by entering a lease with a purchase option. If I have done a good job of explaining these advantages to them, collecting option consideration, (the equivalent of three to six months rent is my target), is an accepted term.

moneynfast, enero2k hit the nail on the head. I would like to add a few things, too. Keep in mind, tenant/buyers are usually quite a bit different than your typical tenant, who might view the landlord as the bad guy taking their money every month. On the other hand, a tenant/buyer will, if logic prevails, take care of a property as if it's their own because that is their intent when entering the Option to Purchase Agreement. Taking care of a property includes maintenance and repair, and timely payments. Of course, this doesn't guarantee perfect results every time. Anyone who tells you they have never had a problem with a tenant or with a tenant/buyer is lying. You can minimize the likelihood of problems with careful screening of your prospects, as enero2k suggested. And having a database of potential tenant/buyers is certainly a good thing, too, for when you need to cover your butt in a hurry. Keep in mind that if a tenant/buyer elects to skip out you have already collected a sizeable amount of option consideration upfront, (you did, right?), which should help ease your pain. Finally, you'll find in this business that the difficult half of the equation is securing the properties to offer to tenant/buyers. Once you have the property available, a well worded ad offering a generous rent credit will usually have the phone ringing off the hook. The bottom line is that while an occasional vacancy may occur while you are in the midst of a sandwich lease, my experience has been that is the exception rather than the rule. Do not allow this fear to prevent you from becoming an active lease purchase investor in your community. Be aware of all the possibilities, and be prepared to deal with any situation that presents itself, and you'll be successful. One other thing..........if you find that you do not want to be in the middle of these type deals, instead of subleasing a property you can always assign, or flip, the contract for quick cash and no headaches. That's the beauty of lease purchasing.

Dave is correct in his observation. I discounted too much the fact that the property you want to finance is of the commercial/mixed use variety. That does change the picture as was pointed out in Dave's reply. Still, the best advice is to not prejudge your abilities to obtain financing. Rather, contact a variety of people in the know about these things, the actual decision makers if you can, lay your cards on the table and see what kind of deal is available to you.

HAHAHAHAHAHA!!

Hi, Andrew. Actually, your post does make sense. In another life, or what seems like another life, I traded commodities. There, you can actually invest and profit while prices recede. You sell, or "short" the market in anticipation of a price drop, be it gold prices, soybeans, crude oil, or pork bellies. It doesn't matter. If you're short the market and prices drop, you profit. Real estate, of course, is totally different. I don't know anyone who invests in real estate expecting prices to drop. Of course, as wise investors we are aware that prices flucuate. As wild as appreciation has been over the past few years, we can readily see a comparable price drop in the future. Does this mean we should avoid real estate as an investment? Of course not! If your strategy is to buy and hold, then the ups and downs of the market are, for the most part, unimportant. For example, you buy a single family property to keep long term and use as a rental property. Unexpectedly, there is a price drop over the next few years of, say, ten percent. If you need to sell at that time then, yes, that affects you. But, if this property is being held as a long term investment, the cyclical patterns that may occur are buffered by your long term approach. In the meantime, your tenants are paying off your mortgage, and eventually prices will turn and appreciation will occur once again. Leaving you, the wise investor, sitting pretty. If you should have a property under control with a sandwich lease type set up, you have even less to worry about should the local real estate market collapse. If your tenant/buyer elects not to exercise their option to purchase, and you do the same, at the end of the lease agreement you return the keys to the homeowner. You're out of the loop and the property once again becomes the homeowner's responsibility. You, on the other hand, did make money in a declining market, didn't you? You collected option money upfront, and you collected some positive cash flow each month. I've said it before, and I'll say it again: many times, controlling a property can be better than owning it! Happy New Year, Andrew.

Hi, dellp38, and welcome to The Naked Investor! Some alternative ways to purchase a property? Speaking in general terms, two possibilites come to mind right away: 1) Seller financing, or 2) Conventional financing with a No Doc type loan A lease purchase deal is also a "real world" way around needing copious amounts of cash and excellent credit. There are many ways to locate that motivated seller who is willing to do business with you. It comes down to you calling on FSBO's and FRBO's, (don't overlook those For Rent by Owner ads!), or you marketing the heck out of yourself so your name and number are out and around the communities you want to work.

yiannakis, welcome to The Naked Investor! As for your specific abilities to obtain a mortgage, there are many factors that go into that decision. Good credit is certainly helpful, and a positive in your favor. On the not so helpful side is the fact that you are presently not employed. The bottom line is you can probably obtain a mortgage, yiannakis. I have seen cases where I thought for sure the applicant looking to buy one of my properties didn't have a prayer. Guess what? I was wrong and they were the happy owners of their own home. The best advice I can give you is to shop your needs around to several mortgage brokers in your area. Preferably someone who has been recommended to you. Once you have spoken to three or four brokers, you'll know where you stand and what you'll need to do to qualify. Good luck!

The old man is right, for once. The Giants should have played much better. They tried their hardest to give the game away. Fortunately, the Eagles were also in a giving mood. Nice to see the Christmas spirit lives in the NFL. Colt 45?

WooHoo! What a game! 10-7 in OT over the Eagles! Go Big Blue!!

An investor may need to show he/she has good credit. Truth is, I have been asked by only two or three homeowners for a look at my credit history. That's two or three out of maybe two hundred deals. So, it may never come up. That aside, good credit is still something to strive for because it will certainly make your life easier when the issue does arise. You are correct. There are three major credit reporting agencies and, yes, each can and will have different information about you. You'd be wise to view all three agencies reports and then proceed to make the necessary corrections, assuming there are errors.

Daryl, my focus on lease purchasing is because, for me, it is a good fit. I started out the "traditional" way. Buying with conventional financing, fixing, making payments while fixing, tenants and toilets, etc. I figured there had to be a better way. That way turned out to be lease purchasing. I can get into all the reasons why here, but it would become lengthy. If you haven't already done so you can read about what I call The Lease Purchase Advantage on my website. This will hit on the highlights for you. If you still have some questions or want more specifics, let me know.

Andrew, when it comes to business cards, my belief is "less is more". Have you ever received a business card from someone that is so "busy" and full of numbers, text, and pictures that you don't what business the person is in? If so, you understand what I mean. The primary purpose of your card is to make available to the recipient a means of contacting you. Your card is not going to sell anyone anything. When you hand your card to someone it is usually during a brief conversation. During this time you are doing the salesmanship. Your card is a followup with your contact information. Again, less is more and simple is better. No need to get fancy or expensive, in my opinion. And I would definitely not place my residence or personal address on my card, either. You don't want strangers you meet knowing your personal residence. Not a good business practice in this day and age. The basics should include your company name, your name, business/mailing address, a phone number or two, an email address, and that's about it. If the name of your business does not clearly indicate what your business is about, then you may need to also include a brief description. For example, one of my business cards reads: CARBO PROPERTIES, LLC. Immediately beneath that: Specializing in Lease Purchase

WINNER!! Congratulations! You've just won a copy of The Naked Investor for a great post! Please email me at admin@naked-investor.com with your mailing address. Hello, Dave, and welcome to The Naked Investor. Thank you for that informative and insightful post. I know that depreciation and taxes are an important but very confusing issue for many investors. Your post clarifies this subject very well. Again, thank you for sharing that, and stick around and offer your advice and opinions. That what this board is all about.

Daryl, you are right in not assuming that what is legal and proper in the US, would also be so in Canada. You'd be surprised at the differences in real estate law between states, let alone two different countries. That said, I am not personally familiar with the specifics of Canadian law. Perhaps someone will come along and know more than we do, (I know, I know, it's a new board, and it's kind of quiet right now. That'll change Spread the word, amigo!). In the meantime, perhaps these sites can provide you with some information, or point you in the right direction: http://www.duhaime.org/Real-estate/cabcreal.htm http://www.canadalegal.com http://www.realestate-canada.com/services.html http://www.law-lib.utoronto.ca/resources/t...ic/property.htm http://www.actualhomes.com/canada/links/Re...te_Lawyers.html Daryl, hopefully this helps and gets you started. In the meantime, come back, register, and become a regular. If you have any additional questions we can help you with, just ask. And let us know if these links helped any.

You're welcome. Hang around when you can. You're on the cutting edge of something wild and wonderful here............at least we at The Naked Investor think so .