CA paperwork

[Jason (AL) 1]

I may have to use the current L/O contracts I already have in my possesion, as I'm expecting a "present" from Plantation, FL here soon

So I'm not sure what Michael's contracts look like.

 

but...

 

When I'm signing things up with the seller(s), would we use a Lease with Option Agreement (1 document) or use a separate Lease Agreement, along with a separate Option Agreement?

 

How are you, Michael (Pete and others that have the manual) handling this?

 

I know when doing a sandwich L/O, I/we would use a Lease with Option (1 document) with the seller, and use a separate Lease and Option with the eventual T/B. (yes?)

So, am I correct that I would use the same paperwork/method in a CA deal?

 

Thanks

[MichaelC 160]

Jason, when doing a CA, I use my CA Residential Lease Agreement, a separate Option to Purchase Agreement, and then the CA Assignment of Agreements documents.

[jaydub 0]

Hey everybody, newbie here.

I'm waiting on MC's manual so I don't have all the info. yet, but I've been spending alot of time here reading trying to catch up and there's one thing I have yet to be able to define. What is a CA? I keep seeing it with no real understanding of what you're talking about.

Thanks

[Jason (AL) 1]

Thanks Michael.

 

 

 

 

Jaydub,

 

Welcome aboard!

 

What we're talking about whenever you're seeing "CA," we are referring to a Cooperative Assignment.

I'm not sure if you're familiar with the term "Sandwich Lease Option."

But, since you didn't mention anything about it, I'm going to assume you already know of them.

The similarities of the 2 methods (sandwich L/Os & CAs) are structured in the same way, except the exit strategy on your part.

 

To structure a CA, what you do is:

1. work with someone who is willing to sell his/her house on a Lease Purchase.

 

2. you sign a Lease Agreement, along with an Option to Purchase Agreement with the seller. (You now control the property, as well as own rights to the property...making you a principle in the deal)

 

3. market the property as a Rent-To-Own

 

4. when you find a T/B (who has sufficient $$$ to put down as Option Consideration), you simply assign the Lease and Option to Purchase Agreements you had with the seller, over to your T/B. You are now out of the deal and are no longer, contractually, obligated.

 

5. you keep the Option Consideration as your fee for structuring the deal.

*usually you wanna try to keep 100% of it. If the seller wants some of the Option Consideration, you would negotiate with them for no less than 50%.

 

 

The Cooperative part of the CA is based on the idea of you and the seller working together in getting their house sold. Cooperation.....Cooperative.....get it?

 

You can get pretty creative in structuring these type of deals.

But this is just a simple and basic example of what a "CA" is.

You can read up (here on the site) on how to use them on fixer properties, with T/Bs who do not have alot of $$$ to put down, up-side-down properties, etc. etc.

 

Also, you can use this method on lower equity properties.

I'm sure some other folks (investors) have passed on these low-equity houses, as the sellers would have to write a check should they sell themselves or with a realtor.

 

It's a very powerful method to help people sell their houses, assist people in buying a house, and all the while, you make $$$ with basically no risk involved on your part.

 

Do a search of CAs here on the site, read anything written by Pete, Option8, and Adam King (MI)...as they're pretty good with these.

 

If you have any questions about anything, feel free to post a question.

Just watch out for Batman. :ph34r:

[-Tony- 0]

Superman do I need to fix everything you do?

 

4. when you find a T/B (who has sufficient $$$ to put down as Option Consideration), you simply assign the Lease and Option to Purchase Agreements you had with the seller, over to your T/B. You are now out of the deal and are no longer, contractually, obligated.

When you set it up, the numbers would be the best you think you could get (best sale price best rent).

 

5. you keep the Option Consideration as your fee for structuring the deal.

*usually you wanna try to keep 100% of it. If the seller wants some of the Option Consideration, you would negotiate with them for no less than 50%.

 

If the owner says he wants 1/2 of the option $, negotiate 1/2 of the cash flow for you.

[Jason (AL) 1]

Tony/Batman,

 

Superman do I need to fix everything you do?

 

 

QUOTE 

4. when you find a T/B (who has sufficient $$$ to put down as Option Consideration), you simply assign the Lease and Option to Purchase Agreements you had with the seller, over to your T/B. You are now out of the deal and are no longer, contractually, obligated.

 

 

When you set it up, the numbers would be the best you think you could get (best sale price best rent).

 

 

QUOTE 

5. you keep the Option Consideration as your fee for structuring the deal.

*usually you wanna try to keep 100% of it. If the seller wants some of the Option Consideration, you would negotiate with them for no less than 50%.

 

 

 

If the owner says he wants 1/2 of the option $, negotiate 1/2 of the cash flow for you.

 

Perhaps you need to take off your mask for a second or 2, and open your eyes, Batman. As it is evident you failed to see these other paragraphs I wrote :

 

 

1.

You can get pretty creative in structuring these type of deals.

But this is just a simple and basic example of what a "CA" is.

You can read up (here on the site) on how to use them on fixer properties, with T/Bs who do not have alot of $$$ to put down, up-side-down properties, etc. etc.

 

Like I said, I was just explaining what a CA was...not going into details on how to structure different variations of the assignment.

 

2.

The similarities of the 2 methods (sandwich L/Os & CAs) are structured in the same way, except the exit strategy on your part.

 

If you're gonna structure a sandwich L/O, it's pretty apparent that you're going to want the most you can get monthly and on the back-end....same with a CA, except the seller will reap these benefits.

 

 

Also, you stated:

When you set it up, the numbers would be the best you think you could get (best sale price best rent).

 

Obviously, Batman. This goes with ANYTHING one is selling (getting the best sale price).

I was merely informing jaydub of what happened during the assignment phase of the transaction, and when he would be receiving his $$$.

 

 

...cape envy, sheesh

[Adam King (MI) 1]

Tony,

 

If the owner says he wants 1/2 of the option $, negotiate 1/2 of the cash flow for you.

 

That's a darn good idea. But, if you put it the wrong way, you'll find yourself still in the deal with responsibilities you don't want if something goes wrong. Either way, I'm glad you said it because it could be a powerful tool to getting the whole option, or at least most of it. (I can assure you, you just made me a bundle of money with that one)

I learned years ago (And I'm still screwing it up sometimes) that when your buyer wants you to take something from your profit, you take something from theirs. Again I think this idea is a great one if you maintain control!

Regards,

Adam

[grannyguru 0]

I realize you can assign your rights to your tenant/buyer...or to anyone you want to.....

 

However, I thought when we did cooperative assignments it meant we assign the deal back to the seller.... We get the option consideration and are out of the deal.

Seller gets the monthly profits and the back end profits if tenantbuyer exercises option.

 

Holy Batman! No wonder I'm poor!

 

(No; actually, I'm still poor cause I ain't called enuf sellers yet! ...Pesky darn sellers.... they keep distracting me with other notions!)

 

Alice

[Adam King (MI) 1]

Alice,

 

However, I thought when we did cooperative assignments it meant we assign the deal back to the seller.... We get the option consideration and are out of the deal.

Seller gets the monthly profits and the back end profits if tenantbuyer exercises option.

I am one of the exceptions that does this. I don't assign anything to the buyer. They never know how much I make. We all just kind of agreed that MC's way of doing it by assigning to the buyer was a little easier.

Hope that helps,

Adam

[Gary (MO) 0]

Adam

I am one of the exceptions that does this. I don't assign anything to the buyer. They never know how much I make. We all just kind of agreed that MC's way of doing it by assigning to the buyer was a little easier.

 

Do you mean you assign a CA back to the seller?

[Adam King (MI) 1]

Gary,

Yes, I don't assign to the buyer. I use more paperwork including a cooperative option to purchase agreement and other disclosure contracts. I just continue to do it this way because there's more being disclosed to the seller and in MI that's important to me. I wouldn't worry about getting caught up with my scenario though. MC has a nice niche and it works much easier for the beginner. (Not to mention he has a course that explains it.) There's less hassle and less to bang your head against the wall with. The deal still unfolds the same way using MC's method except that the buyer will find out what you make. (Which if you think about it gives good disclosure to the buyer) Other than that, (Which is no biggie) it's just fine.

Regards,

Adam

[jaydub 0]

Thanks Jason, and to all others contributing to my education. I like it. It sounds alot like wholesaleing but with the lease option method. I wondered about that kind of strategy since double closings seem like they would be a hassle. (obviously I haven't done one yet) but one is in the works. I just got back my first signed lease purchase contract from an out of state owner but the intended monthly cash flow on this one is to good to just assign away. My eyes are now wide open for a potential CA deal. Just need to do some studying.

[mlantz7 0]

I am curious about the paperwork issue, also. I have the manual and the contracts, but I am not sure exactly how to structure everything in a CA.

 

In a CA, we obviously never plan to pay any rent to the Seller. So, my question is, as we initially setup the CA, what paperwork do we use with the seller to achieve our goals?

 

I would appreciate info from how you do it, Michael, as well as you, Adam, so I can see the difference in the way it is assigned back to the seller/buyer.

 

In addition, assuming I sign-up a deal looking for a sandwich deal, and then decide to go to a CA, how would something like this work? I am assuming I just assign the whole deal to the buyer/seller. But, which is best?

 

Thanks for all the info.

 

Mike (UT)

[Jason (AL) 1]

So, my question is, as we initially setup the CA, what paperwork do we use with the seller to achieve our goals?

 

Well, if doing it "Michael's way," we would use a separate Residential Lease along with an Option to Purchase Agreement.

And I took the pleasure of digging up this post by Michael from my computer:

 

What's important are the terms such as lease length, monthly payment, rent credits, and purchase price. Details such as number of cars can be left blank for the time being. When you have your specific tenant/buyer you can simply fill in the missing blanks. Really not an issue at all.

As for the lease start date, write in the expected date that you think a tenant/buyer can be located and expected to move in and take possession of the premises. If you find someone sooner than expected, move up the date. If it takes longer you have no risk. See Page 2, Paragraph 8, of the CA Residential Lease Agreement. You have the right to cancel at any time up to the lease start date. You will also complete the Option to Purchase Agreement. Both of these docs are completed by you and the homeowner.

Then, when you find your tenant/buyer, you all sign and receive copies of the CA Assignment of Agreement.

Since you are not remaining in this deal you have no need for filing a Memorandum. The tenant/buyer can, and should, but that is up to them.

 

As far as Adam goes......

 

In addition, assuming I sign-up a deal looking for a sandwich deal, and then decide to go to a CA, how would something like this work? I am assuming I just assign the whole deal to the buyer/seller.

 

Yeah, pretty much, Mike.

I've copied and pasted a pretty neat post from John Carlson about this very subject (signing the deal up as a sandwich L/O, and then deciding to opt for the assignment to the T/B .

 

It all depends on what your situation is and what your plans are with the property.

 

If you plan to assign your deal because you're not ready or financially able to remain in the middle of the deal, then you assign at the time you get a tenant/buyer. You wouldn't be having the tenant/buyer sign any deal with you. You would be just assigning over your contract you have with the seller. Your tenant/buyer would pay you the assignment fee you want and just take over the contract you already have with the seller.

 

If you are financially able to remain in the deal in case something was to happen, but wanted to try and maximize your profit by getting as much as possible up front and then moving on without remaining in the deal, then enter into a separate contract first. You would enter into a L/O agreement with your tenant/buyer as if you were remaining in the middle of the deal getting as much option consideration as you can up front. Then in a month or so after doing the deal with your tenant/buyer you would approach them by offering an even better deal if they could come up with another, say, $5k!

 

Here's how it would basically work.

 

Assume you had a L/O with the seller where your rent was for $800 per month, with an option price of $100k, and you had up to 5 years to exercise the option with the seller.

 

You then find a tenant/buyer and offer them a 1 year L/O with rent payments of $1100 per month and an option price of $120k, where you got $5k from them in option money. They would have to come up with $115k within a year to exercise their option with you.

 

After about a month or so you would approach your tenant/buyer by offering them a much better deal if they could come up with another $5k now.

 

Mr. & Mrs. Tenant/Buyer, would you be interested in an even better deal if I could offer you one? Um, certainly! Who wouldn't???

 

OK, what would you say if instead of an option price of $120k, which you will need $115k at the end of the year aftering crediting the $5k option money you paid, if I could give you an option price of only $100k instead, AND, instead of paying $1100 per month in rent I could give it to you for $800 per month instead, AND, instead of only having one year to exercise the option I could give you 5 YEARS instead....would that interest you at all???? Great! Well if you could come up with another $5k I can give it to you for that!

 

You will save $10k on the purchase price, $300 per month in rent and you'll have 5 years to exercise the option with the price locked in at $100k!

 

Over 5 years that would save you over $17k in rent and $10k on the purchase price! That's a minimum of $27k in savings PLUS all the equity you would gain off any increase in value the property appreciates over the next 5 years! At a mere 3% per year in appreciation that would be over $15k appreciation in additional savings on top of the minimum $27k+ you'll save off the lower rent and purchase price! That's a potential $43k you'll gain for a $5k investment today!

 

Then instead of you only making the $5k up front as an assignment fee, you'll make $10k in profit by getting the first $5k as option money and then another $5k as an assignment fee later!

 

Also, if they don't have the $5k now, maybe they could come up with $2500 or $3000 or whatever right now and you could offer to finance them the difference! Remember, they will be saving $300 per month in rent, so they'll have that much extra to make payments on anything you may need to finance them for on the difference!

 

Of course, if you can't risk getting stuck in the middle of this deal because of financial problems you have right now, then don't try risking this approach in case your tenant/buyer ended up not being interested or able to come up with any extra cash! Otherwise you could end up getting stuck remaining in the middle of the deal which is something you can't afford to risk if your finances are limited right now! Wait until you're in a better financial position before attempting this strategy!

 

As always, whatever you do when assigning your interest over to someone else no matter which strategy you use, ALWAYS make sure you get a signed release of liability signed off by the seller releasing you from your obligations of the contract!

 

Hope this helps, Mike.

[CC Rider - MI 0]

Here are a couple points to ponder about the last response / post from John Carlson:

1) First, this smells of a bait-and-switch technique, and you may come off looking a bit like a snake-oil salesman. If you have any intent of making an alternative available to the tenant, present it before they sign the sandwich lease.

2) Since you intentionally didn't set up the deal as a CA, the seller is assuming he will be dealing with you through the length of the contract. Having it assigned over to someone new, may not be what the seller wants. That is, he may be comfortable dealing with you, but not to a stranger. [i'll concede that MC's contracts do include the phrase "or assigns", meaning we are certainly allowed to assign the contract. I feel you should inform the seller up front that you intend to operate that way.]

 

Both 1 and 2 give the feel you've set something up, and are trying to slip away into the darkness with the loot.

 

3) Last are the terms of the deal. Typically to entice a T/B you offer 50 to 100% rent credits. You now dangle a lower option price and lower rent in front of them. Unless you point out the fact that your contract with the owner doesn't have RC's with it, you give a wrong impression about the deal. And being deceptive isn't going to win you much future business.