Possible first L/O deal

[-Tony- 0]

tgaspard,

 

Mistake #1 - I should of asked on the phone if it was possible we could sign papers today.

Mistake #2 - I'm starting to think I should of asked for a lower price due to the bad carpets and the need for inside paint.

See you are already learning from this deal (soon to be deal).

[MichaelC 160]

Todd, overall you did very well! That's great news. You're thisclose to your first deal. We'll see what happens tomorrow. Deal or not, the value of all of this is you are so much wiser for the experience. Getting over the hump of meeting a homeowner and talking about this stuff for an hour or two is no small accomplishment. Your action will pay you many, many dividends. If not on this particular deal, then certainly as you continue to pursue this business. It only gets easier.

Some questions/comments:

They mentioned needing some money up front.

Homeowners often do. It usually isn't true. They want money upfront. Hey, can you blame 'em? We all want money upfront.

I had previously planned my strategy if that was to happen. 1 -I'd offer to prepay some rent up front or, 2 - give a security deposit, and 3 - as a last resort I offer up some option money. I had already decided I would not offer #3. Option money I could never get back, but at least I could get back a security deposit if I had to get out of the deal.

Good to read that you entered your talk with the seller with a plan in place, and a back up or two. Anticipate the questions you will be asked, prepare your answers, and you'll appear knowledgeable and professional, and probably won't make any wrong, on the spot decisions.

One technique I like to use when the homeowner tells me they want some money in their pocket upfront:

Homeowner: Will we be receiving any money upfront? Who pays us the damage deposit?

Me: Mr. Homeowner, I understand your concern in this matter. But, let me explain this issue. Our company doesn't give damage deposits. In fact, it is against company policy. The reason being that we are managing your property at no charge to you. We are responsible for all maintenance and repairs should any be necessary. Other property management companies charge ten percent monthly, and you will be billed for any repairs they are required to perform. So, we collect from our tenant/buyer a deposit, but we hold it in the event we have to make repairs or perform any maintenance since that is our obligation to you.

 

I have found this will usually suffice in addressing this issue. Remember, we are always trying to get these deals with nothing out of pocket. And that's usually the way they go down. On occasion I will be dealing with an insistent homeowner. They insist on some cash or the deal ain't happening. Well, if I want the deal, if the numbers are good, the exception I will make is to offer them the equivalent of one month's rent as nonrefundable option money. This will almost always work. First, I emphasize that it isn't a damage deposit but, rather, nonrefundable option money. They are pleasantly surprised. I explain, again, that I am going against company policy but I want them to be comfortable and happy with the deal. Even when I agree to this, though, no money leaves my hands. After I receive my option money from the tenant/buyer, I will then give the sellers their share.

We decided on 3 months rent up front. Since rent will be $1000 a month, I will give $3000 up front (only after I have a Tenant/Buyer) and pay them $500 a month for 6 months to recoup. I would then go back to $1000 a month. Thus I recoup my up front profit in 6 months.

Todd, I want to be sure I understand what you agreed to here. Once you have a tenant/buyer signed up, you will then pay the sellers three month's prepaid rent, (which works out to $3K). I assume this money isn't coming out of your pocket, but from the option money you anticipate collecting. Now, instead of recouping that in three months of zero payments to the homeowners, you will pay $500 per month for six months to recoup the money. Is this correct? In the meantime, your t/b is paying you your anticipated rent 0f $1,200 - $1,250 per month, giving you a substantial cash flow for those six months. Plus, I imagine you can expect, what, three to four grand option consideration from the t/b? Overall, it's a workable solution you offered the sellers and for yourself.

Unfortunetly I don't have a signed contract. They have someone coming to look over the house on Monday. They asked if I would be available to possibly sign papers on Tuesday. That other investor guy had to reschedule and will be looking at the property tomorrow. I got them to understand that if things ever went wrong with me they could evict, but with the other guy, they would have to foreclose (and thats another animal entirely)

Good point bringing up scary words like foreclosure. Let 'em think about that while they're talking to the other guy. You didn't leave your contracts/offer with them, did you? You don't want the homeowner shopping your offer around to other investors/buyers. Also, don't leave an offer open ended. It needs to have an expiration on it so they know this is serious and they need to give it some thought and make a decision.

Mistake #1 - I should of asked on the phone if it was possible we could sign papers today.

Mistake #2 - I'm starting to think I should of asked for a lower price due to the bad carpets and the need for inside paint.

Agreed. I always to prefer to let another investor make his pitch first, then I will talk about what I can do. The homeowner will tell me about the other offer, and I am on the spot with counter arguments as to why my offer is better suited for them. It's advantageous to be in this position. As for the lower price, yes, once you saw the cosmetics that need repairing you should have and could have offered $5K less and might very well have been able to knock off another $2,500 from the purchase price.

Neither is a disaster. Gain experience and learn the business. Keep us posted.

[tgaspard 0]

Thanks for the reply Tony and Michael

 

 

Todd, I want to be sure I understand what you agreed to here. Once you have a tenant/buyer signed up, you will then pay the sellers three month's prepaid rent, (which works out to $3K). I assume this money isn't coming out of your pocket, but from the option money you anticipate collecting. Now, instead of recouping that in three months of zero payments to the homeowners, you will pay $500 per month for six months to recoup the money. Is this correct? In the meantime, your t/b is paying you your anticipated rent 0f $1,200 - $1,250 per month, giving you a substantial cash flow for those six months. Plus, I imagine you can expect, what, three to four grand option consideration from the t/b? Overall, it's a workable solution you offered the sellers and for yourself.

 

Michael - yes that is 100% correct exactly as you have described. That is what I offered. I also like what you said about company policy for not giving upfront money - I'll remember that small lesson next time (and there will be a next time).

 

You didn't leave your contracts/offer with them, did you?

 

Michael - I'm a recovering dope of "Paralysis Analysis". I've read every single thread on this web site and I remember you mentioning that before. So no, I did not leave my contracts. If that was ever brought up I'd bring up company policy and explain it would be bad practice since nothing would prevent them someone from using these valuable contracts.

 

And yes, I think I'm very close to a deal. In-fact they told me if the people coming to look over their place on Monday had trouble qualifying they would send them to me.

 

2 Questions

Michael - if you walked into a house and immediately felt the need for some work to be done like carpet/paint, how would you handle this with the seller?

 

If I get this home I'm thinking I'll advertise two ways. One, like you said, "Rent to Own with 50% rent credit." Two, "Handy man special, low down - earn your down payment" Have you ever done a handy man special where you put the tenant to work painting the place and credit them if they buy? I've heard others using this approach. Have you done something similar? And if so, any lessons learned or advice I should watch out far?

 

You guys are so great - thanks again for supporting us newbee's!

[-Tony- 0]

tgaspard,

 

Michael - if you walked into a house and immediately felt the need for some work to be done like carpet/paint, how would you handle this with the seller?

 

I am not MC but, I just had a deal like this. I told them I would give them a carpet allowance.

 

You could also say that "Yes I know the carpet needs replacing and this is one of the reasons I give you the healthy rent credit". If you would like I could reduce the rent credit by 25% and give you a $1500.00 carpet allowance.

 

Another reasons why I am not replacing the carpet is because I am allowing you to after you buy. Allowing me too? Yes, it will be a tax deduction for you and which in turn saves you money.

 

good luck

[MichaelC 160]

if you walked into a house and immediately felt the need for some work to be done like carpet/paint, how would you handle this with the seller?

Happens often enough so that I don't even think twice about it.

I politely point out that "I overestimated the condition of some things, Mr. Homeowner, based on our telephone conversations. I wasn't anticipating the need to replace the carpets and the tile in the bathroom. Factoring that in, I'll need to adjust my offer by $2,000 (plug in whatever number you feel is justified). Or, would you prefer to take care of this yourself?"

Something along these lines usually gets the deed done without much hassle. We negotiate a bit and can work out a price that better reflects the condition of the house now that I have seen it. By the way, even though I give them a choice of lowering the price or doing the work themselves, my preference is to lower the cost. And most every time the homeowner agrees because they don't want to be bothered with the labor involved. Neither do I. That's what tenant/buyers are for .

If I get this home I'm thinking I'll advertise two ways. One, like you said, "Rent to Own with 50% rent credit."

An oldie, but still a goodie.

Two, "Handy man special, low down - earn your down payment" Have you ever done a handy man special where you put the tenant to work painting the place and credit them if they buy? I've heard others using this approach. Have you done something similar? And if so, any lessons learned or advice I should watch out far?

Yes, I have. And in so doing I learned a few things along the way. Most tenant/buyers will tell you they will make all the repairs necessary in exchange for getting into the property with no option money down. Don't take the bait. More times than not the work won't get done and you'll have no money in your pocket. Instead, there are any number of ways to have them do the work and then credit them for doing so.

For example, collect your option money as usual. Then, as the work is being done you can "refund" it to them in increments. That's incentive to work quickly.

Or, you can lower the purchase price if the work is done as agreed to.

Or, you can increase the rent credits.

We are only limited by our creativity. (See Tony's suggestions, for example).

The bottom line, though, is not to take anyone's word for it. Get your money and remain in control. The tenant/buyers can be "rewarded" after the fact, not before.

[tgaspard 0]

I want to thank everyone again for the feedback on this deal.

 

Today is Thursday and I was supposed to hear back from him on Tuesday. I have not heard back so I'm thinking the deal is dead. I learned many things from this first contact with a motivated seller. The last lesson I'd like to report that indeed I think my offer was shoped around to other people. Like Michael said, offers need an expiration date. If he does call back - 24 hours is all I'll give him to sign.

 

I am not bumed at all - infact just the opposite. The lessons were invaluable and when I meet the next motivate guy I won't be making those same mistakes.

 

For all the new people out there reading this: Go ahead - make that first step - contact people. I found a potential deal from sending 10 little postcards in the mail. And you will learn more from talking to one person than spending weeks trying to educate yourself.

 

So I'm off to the next deal!

 

Todd

[MichaelC 160]

Todd, you've got a great attitude that will go a long way to contributing to your long term success in this business. I've always said there is no education like experience, and you are further proof of that.

One more suggestion: why guess or think this deal is dead? It probably is, but why not contact the homeowner and follow up? Who knows? Maybe your business card was stolen by that other investor ?? In any event, this deal is worth another 90 seconds of your time.

For all the new people out there reading this: Go ahead - make that first step - contact people. I found a potential deal from sending 10 little postcards in the mail. And you will learn more from talking to one person than spending weeks trying to educate yourself.

 

So I'm off to the next deal!

Worth repeating!

[tgnite 0]

Todd,

My one bit of advise, WHEN this deal goes through is to

dump the pool (sell it cheap) I believe there would be

liabilty problems when YOU install a T/B. They could

purchase a pool and install on their own if desired.

 

Great job!!

 

P.S. I visited the web site, looks good !!

 

John

[tgaspard 0]

Just when I thought that this deal was dead, the guy called me back!!!

 

Dang - I could of sworn that I said this once before. Anyway, for those of you who have bee reading this thread, you know that this is my first deal and the deal seems to die then come back. This is the third time the deal is back on.

 

My offer has never changed. The only thing that has changed is his motivation as it gets closer to his closing on his new house. And this time I gave him a deadline! (I should of done that the last time) I told him if we are going to do this we must have it signed up by tomorrow. He agreed and we should be signing at 7:15 tonight. I don't think I mentioned it but I'm also letting him keep his FSBO sign up while I have my sign in his yard (though only for a period of time). My legal consideration will be $10 and my first rent payment to him is 4/1/04. And of course I have Michael's contract outs in place.

 

Thus - should we sign tonight - this deal now turns into me finding a tenant buyer. I think I'll start a new thread for that.

 

tgnite - I agree with your advise. In-fact I told the same thing to the seller. I mentioned his liability with that pool and his insurance would not be as high if he removed it. But he said and I saw when I toured his home, that it would be a major project to remove it - they really have it set up nice. I believe the ultimately liability falls to the seller and not me - and he is aware of the risk.

 

Todd

[MichaelC 160]

This deal returns more often than my mother in law at an all you can eat buffet!

Keep hope alive, Todd! Keep hope alive! Overall, very good news for you. I see you are learning from your mistakes........issuing a deadline, for example .

Two concerns for me as I read this. First, what does this mean:

I don't think I mentioned it but I'm also letting him keep his FSBO sign up while I have my sign in his yard (though only for a period of time).

How can be be attempting to sell his house while you already have a signed contract on it? Please clarify.

My other worry is the pool. If you're going to be in the middle of a sandwich lease, (that's still the plan, right?), you too may be liable in the event something happens in or around it. You know how litigation crazy our society is. Be certain to operate as an LLC to separate your assets from this deal, and you may want to look into getting an insurance policy to cover yourself in the event someone does try and sue you. I'm not trying to chill you about this deal, but it's always better to address these matters sooner rather than after the fact.

[tgaspard 0]

Michael

 

Concern #1: This is pretty much a now down deal and thus as long as it stays that way I told him he can keep his sign in his yard. Our contract can be voided from him only if he has a signed "cash sale" and only if this happens before I have a T/B. If I get a T/B he then has no out. Thus we have a race! I will advertise like a mad man where he is not advertising at all. Really I want him to get his house sold! If he can get it done then great - I'm okay with that. But I really feel that I can win this race. His sign must be out by 4/1/04. Once I'm paying him real money - his sign must go.

 

Concern #2: I do have a LLC. I have one rent house in the LLC currently and will do this deal in the LLC name. I'm thinking this is enough protection. Do you think I need further insurance and if so what kind?

 

And yes this is a sandwich deal

[MichaelC 160]

Thanks for the clarification. As for insurance, I suggest you contact your agent, or an agent you know or one who has been recommended. Explain your situation and see what is available. It should not be too expensive and well worth it for the peace of mind such a policy would offer.

[tgaspard 0]

My First Deal is Signed with the home seller!

 

Recap:

- I joined this forum Oct 12 2003(I already had some knowlege on Lease Options)

- Got off my butt, drove around and found 10 FSBO or FRBO signs.

- I sent out 10 post cards to these people

- Jan 8, I got one call back from these cards and he was motivated.

- Deal On - Off - On - Off - then On again.

- Deal signed with seller on Feb 5. (Sandwich Deal)

 

Deal Terms

- Out of pocket cost = $10 (ten dollars + those post card stamps)

- My first rent payment = Apr 5

- Rent = $1000 (just enough to cover his payments)

- Term = 36 months

- Last day for me to cancel deal = Feb 28

- I can terminate deal at any point - total liability to terminate = 1 month rent

- He can terminate deal only before Apr 5 and only if he finds a buyer before I find a T/B

- Home Price = $119000 (look at a previous post for area comps)

 

Home

- Close to 2400 sqft

- 4 or 5 bedrooms

- 3 full baths

- 2 car garage

- Outside of home is very nice - well kept up

- Inside of home could use some paint and carpet (cosmetic)

- Above ground pool

- House is unique - owner modified - construction looks very well done.

 

Signing went very smoothly. I had them write everything into the contract. We went over each point together, one at a time - No problems came up. I was out in an hour and they took some of my cheezy business cards to give to some other people they know who are having trouble selling. Wow!

 

My biggest surprise = I was suprised on how easy this first deal went!

 

But now I'm on the hook - I must find a buyer now! I'll be putting it in the paper today, "Rent to Own - 50% Rent credit - call xxx-xxx-xxxx". I'll start a new tread for that adventure. In my mind, this is not a success until I have the home sold. I'm willing to risk 2 months of home payments. Thus I must find a buyer by the end of May.

 

Thanks for all the advise and support! This forum is absolutely the best!

 

Todd

[-Tony- 0]

POP POP POP

 

Congrats

[MichaelC 160]

Way to go, Todd. This gives me the excuse I was looking for on a hot Friday afternoon...........it's early, but it's Miller Time, apparently.

Seriously, look at how fine a job you did on your first deal: $10 down and you now control a property for three years; all sorts of options and possibilities avail themselves to you now with this property. Sublet it, assign the deal, etc. If you hold it and your first tenant/buyers don't buy, rerun the movie and do it again. And you've done all this with minimal risk. You've got about a three week cancellation clause in effect. After that, should something go wrong, you also have an early termination clause limiting your liablility to one month's rent. That's a very favorable risk to reward ratio.

Signing went very smoothly. I had them write everything into the contract. We went over each point together, one at a time - No problems came up. I was out in an hour and they took some of my cheezy business cards to give to some other people they know who are having trouble selling. Wow!

Don't be surprised how one satisfied homeowner can lead to another. Be in this business long enough and many deals will come your way via referral.

My biggest surprise = I was suprised on how easy this first deal went!

And it only gets easier.

Now, though, stop patting yourself on the back and get to work marketing this property: newspaper ads, sign on the lawn, directional signs around the neighborhood, flyers all around, word of mouth, etc. Now is not the time to be the shy, skittish type .