L/O Fixer-Uppers to Investor

[<Steve> 82]

Hey Guys-

 

I know an investor that buys fixer-uppers using hard money lenders then after rehabing sells retail. He also has a few straight rentals. The few rehabs he has completed are closer to war zones than what I like but seem to sell quickly.

 

He is interested in how I do my business of the Lease Purchase Advantage. Seeing how we are in the same market, I am not willing to just let him know everything that I have worked hard to learn and continue working hard to grow my business.

 

I did mention to him that if he finds a seller with a fixer-upper that would consider doing a L/O (sandwich), I could step in and set up the deal with the seller. The investor could then L/O from me, do his rehab then sell retail. I mentioned it would save him from having to go through the hassles and paper work of obtaining a loan. I mentioned he would pay me a monthly payment and that I would also collect a fee (option consideration). A triple close I guess.

 

Well, this could be a good opportunity as he is now going full time and could bring some deals my way. Any suggestions on how I can explain how we can work between us on deals without giving away the farm of my business?

 

I was thinking of explaining that I would work out a deal with the seller in general terms and then be more detailed on how our L/O would work. I am still hesitant as he is no longer employed and is motivated to grow his business.

 

Thanks,

<S>

[Adam King (MI) 1]

Steve,

You're right, this is a good opportunity for moving properties that you can't/don't want to rehab. There are several ways you can go about this, but the basics are the same. Take over on terms with enough equity/leverage to make sure you don't lose and find the right buyer that can have a piece of that equity. We're actually doing several deals with a guy (who may be reading this) who had no money, but the ability to fix them up and rent them. (They were in real bad shape and in/close to war zones) We sold them to him on LO zero down and he's been doing great with the repairs and getting them filled. We have given him three more over the last couple of weeks because of his performance. (I think he's up to 7 now)

 

As for giving away the farm, I wouldn't worry about it. LOs aren't some well-kept secret. Not too many people can follow through an acquisition therefore leaving a lot of opportunity for those who can. Just work to become good at what you do and you shouldn't have to worry about people doing things without you. But, if you get greedy, they'll certainly try.

I would just set it up without allowing him/her to go any where near the seller. It's not his/her business if you're the one in control.

Hope the helps,

Adam

[<Steve> 82]

That's good advise from your experiences Adam.

 

I guess it's true that L/O are not a well-kept secret, and maybe I shouldn't worry about giving away the farm.

 

We sold them to him on LO zero down

If you don't mind me asking, where is your profit coming from? Zero down and he rents them out as straight rentals. The back end should he purchase? And/Or monthly?

 

This rehab investor is out in the field looking for properties everyday. And I was thinking that instead of me looking for the rehab properties to lease option to the investor. If the investor came across a rehab seller, willing to do a L/O deal, the investor could contact me, with my knowledge and contracts etc..., I could step in and do the L/O sandwich deal and the investor, being my t/b, could do his rehab work and sell the property. You know what I mean? Or is this wishful thinking? It may be difficult to keep the investor away from the seller.

 

Hope this makes since.

<Steve>

[Adam King (MI) 1]

Steve,

 

If you don't mind me asking, where is your profit coming from? Zero down and he rents them out as straight rentals. The back end should he purchase? And/Or monthly?

 

Yes, he was given a two year balloon on the lease. His payments are higher than ours as well as the purchase price. The properties needed a lot of work and we exchanged labor for down payment. Either way it's non-refundable and both of us win.

 

If the investor came across a rehab seller, willing to do a L/O deal, the investor could contact me, with my knowledge and contracts etc..., I could step in and do the L/O sandwich deal and the investor, being my t/b, could do his rehab work and sell the property. You know what I mean?  Or is this wishful thinking? It may be difficult to keep the investor away from the seller.

 

If the investor is bringing in the deals by making first contact with the seller, then common sense tells me that he would eventually try to learn this stuff on his own. But that's not always the case. I was hinting to not becoming greedy for this very reason. This is where you can become a consultant, make a few thousand and lose your liability while he creates and keeps the equity. That's what I have done for the other properties I talked about above. I was paid by the seller as a consultant and therefore was called back every time there was another property available to move.

 

Depending on the relationship with the investor, this could work out great for both of you. I would consider upping your service and hooking him up with a Realtor to help move the properties or offer your services to CA them back. Could be some cool stuff for both of you.

Regards,

Adam

[<Steve> 82]

Yeah, I see your angle Adam.

 

Wouldn't be bad to pull a couple deals with one property. I will be having a meeting with this investor middle of next week and maybe I can put together a couple ideas similar to what you've mentioned.

 

Thanks Adam

 

<S>

[MichaelC 160]

Steve, if this investor is legit, he is not going to make a habit of handing deals off to another investor with any regularity. You may have an idea or an angle that he isn't yet familiar with. He wants to see what you've got up your sleeve to better his business. Nothing wrong with this. It's what we all strive to do. I've yet to meet another investor who invests to make me money. I make it a practice to avoid other investors, and deal with homeowners instead. That's where the deals and the money are.

I don't see how or why he would initiate contact with a homeowner, turn that lead over to you, and in turn be charged a mark up from you.

The practical, unencumbered approach to take would be to explain to this gent how you can net him a higher sales price, a higher monthly rent, while at the same time having no tenant and toilet aggravations and no Realtors fees or closing costs to deal with. There's nothing there for him to see as a negative. I'm talking about a Cooperative Assignment, of course. You do one, and he'll probably be off to the races on his own from then on. But, so what? You made your deal and your dollar. He doesn't hold the only real estate in town.

[<Steve> 82]

I don't see how or why he would initiate contact with a homeowner, turn that lead over to you, and in turn be charged a mark up from you.

This is what I thought, and I'm not in favor of spilling my guts on how I do things either. Of course I can be bought.

 

The CA seems a good way to go, this investor currently has a vacant rental and may be willing to do a l/o sandwich or CA.

 

The practical, unencumbered approach to take would be to explain to this gent how you can net him a higher sales price, a higher monthly rent, while at the same time having no tenant and toilet aggravations and no Realtors fees or closing costs to deal with.

 

Maybe I will approach this were I will bring him the fixers and he can receive all the advantages of our lease options.

 

I am going to keep the cards close to my chest unless he is willing to anti-up for a consultant fee.

 

Some things to think about, Thanks most helpful.

<S>

[MichaelC 160]

The CA seems a good way to go, this investor currently has a vacant rental and may be willing to do a l/o sandwich or CA.

It all depends on the numbers, Steve. A motivated seller is a motivated seller. And if the numbers reflect this and give the size spread needed to be in the middle, opt for a sandwich lease. If not, the CA makes sense.

Maybe I will approach this were I will bring him the fixers and he can receive all the advantages of our lease options.

Not sure what you mean here when you write "bring him the fixers".

[<Steve> 82]

It all depends on the numbers, Steve. A motivated seller is a motivated seller. And if the numbers reflect this and give the size spread needed to be in the middle, opt for a sandwich lease. If not, the CA makes sense.

Got it MichaelC

 

Not sure what you mean here when you write "bring him the fixers".

If I should find a motivated seller with a rehab house and willing to do a l/o, I could bring in the investor as a t/b.

 

<S>

[MichaelC 160]

Not sure what you mean here when you write "bring him the fixers".

If I should find a motivated seller with a rehab house and willing to do a l/o, I could bring in the investor as a t/b.

 

<S>

......or as an assignee, also. Done a good number like this. Rehab investors gobble 'em up, usually. If they are buying the property it's hard money because a property in need of repair isn't going to get a conventional loan.

But, if they can put down a few grand instead as an assignment fee, this frees up their cash to make the necessary repairs.

Just one more approach you can use as you're wheelin' and dealin'.

[option8 0]

Good stuff here!

 

Let me see if I get this right.

 

If I find a property that needs fixing up (and I don't do rehab!), I can do a CA or Sandwich Lease with this handiman special.

 

I can either assign my contract for a fee or sublet to an investor for low to no down. If it is my sandwich, I rent it to the investor for more than my rent payment the seller. If it is a CA, I can assign my contract for a fee..

 

So, investor gets a house to rehab at a predetermined price and he pays for the fixup.

 

I can come back in and move his improved property on a CA to get the ultimate TB in the property.

 

Now, lets see if I have all of this right:

-Investor can refi out his profits and cash seller out.

-Seller gets a highly improved property if no one exercises

-and I get paid now---maybe even twice!

 

what's not to love about this board!!!

 

option8

[<Steve> 82]

That's it option8!!! You nailed it.

 

I'm going to print your reply and carry it around tomorrow, so I can memorize it.

 

You've gotta love this stuff.

 

Now all I need to do is get this through to the investor.

 

<S>

[chitown83 0]

I've read all the posts and this sounds like a great technique to use if you find a house that needs some work. But my observation is that I think it would be smarter to sublease the property to the investor with a balloon at the end because if he has an option to purchase he may not exercise. What would happen if you subletted to a supposed handyman and he was a hack and messed the place up even worse. I could foresee this giving someone a big headache when the original owner wonders what happened to his property. If you had a lease with a balloon after say 6 months then the rehabber would be forced to purchase the property, whereas with the option things may get a little harrier. Maybe im wrong. If this has no validity someone correct me, if it does im glad I could make a relevant point.

 

 

Jim (chitown- USA)

[<Steve> 82]

You make good points Jim-

 

However, I think you would need to screen and qualify the rehab investor as you would a typical tenant/buyer. And like a tenant buyer in a sandwich, the rehab investor has the option to buy or not to buy. If not than find the next rehab investor and do it again.

 

I do see an issue with a no down payment however. So, to be sure the investor has something in the deal up front, it would be smart to receive an option consideration. Or as was mentioned, assign the l/o paper to the rehab investor for a fee.

 

I think the real issue is how to find the properties? I don't think it is something one can easily market for with an ad or making phone calls to FSBOs. It seems it may take some ground work to find the properties fist, then back into the owner.

 

Anyone have ideas on finding fixer-upper houses to Lease Option?

 

<S>

[MichaelC 160]

What would happen if you subletted to a supposed handyman and he was a hack and messed the place up even worse. I could foresee this giving someone a big headache when the original owner wonders what happened to his property.

Good point, Jim. And the very reason my contract states that any changes to the property require written permission from the homeowner.

I do see an issue with a no down payment however. So, to be sure the investor has something in the deal up front, it would be smart to receive an option consideration.

I do, too, Steve. I speak from experience on this one. I did a few deals with no money down and the "handyman" to come in and make all the agreed to repairs. Well, what usually happens is the repairs and work are never done, and no option money is paid. Not a good situation for me. I learned from my mistakes. No option money, no deal. There has to be something upfront. The t/b must have something to lose or it's too easy for them to misbehave.