Todays Actions Resulted In

[Craig 0]

I am starting my own title within this forum at MC's cost. Sorry MC. It will have a good return I think. If any others want to follow , that's fine. I am using this to record my daily actions which resulted in...CA$H.

 

My actions 2 weeks ago of sending out 50 emails has resulted in a appointment visiting a property this Saturday. The property is a motivated seller and a out of the area agent. Both like and have agreed to my short form figures. Agent agrees to her cut at the time of closing.

 

The owners are out of the home. Its a lake view home with lake and dock rights. Figures are very good. The season is off but that could be a good thing for LO deals. Could even be a bed and breakfast. Nice property, 5 bdm, 2.5 b. etc.

 

2 weeks of trading information looks to be paying off with this deal.

 

This very well could result in being my first deal. Although deals have failed in the past they have been very good lessons learned. THINK POSITIVE>

[MichaelC 160]

Hi, Craig.

I am starting my own title within this forum at MC's cost. Sorry MC.

I don't mind. I'll bill you next month....

What type of deal are you looking at? CA? Sandwich? In the excitement of getting a deal done, one can often overlook their due diligence. Just be certain of your facts and figures and, even though we are the motivated buyers, don't show it and don't think like one.

This very well could result in being my first deal. Although deals have failed in the past they have been very good lessons learned. THINK POSITIVE> 

Good attitude.

[Craig 0]

I have been keep this a low profile deal. Not showing any real interest in it because she is an agent. Although I have remained in the picture and she keeps comming back. She has gone back to the owners and they are liking the idea and numbers. They are motivated with 2 payments going.

 

Plan on doing a Sandwich lease at this point. Tonight I am doing electronic CMAs on that home. The owners have a low month payment on the home, so it is very workable. The listing price of the home seems fair market for this area. Plus its water view with all rights and dock space too. That is very valueable to the price here in Upstate.

[MichaelC 160]

They are motivated with 2 payments going.

Could you clarify this, Craig?

[Sold ! 0]

They are motivated with 2 payments going.

<{POST_SNAPBACK}>

 

 

To me, that would mean they do NOT live in the home, it is vacant and they are paying 2 mortgage payments every month.

 

Correct?

[Craig 0]

They are motivated with 2 payments going.

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To me, that would mean they do NOT live in the home, it is vacant and they are paying 2 mortgage payments every month.

 

Correct?

<{POST_SNAPBACK}>

 

 

Yes this is correct.

[MichaelC 160]

Well, then, they should be motivated. There's nothing like payments on a vacant property to light a fire under a homeowner. What's the latest, Craig? And keep in mind that the more time that passes from the initial contact until the paperwork is finalized, the greater the likelihood that something can and will squash the deal. Can you get an offer in their hands?

[Sold ! 0]

Speaking of offers, what's the best way?

 

Is the short form offer from the manual the method of choice? And, what about the blanks for rent credits and option consideration? Do you leave them blank or fill them out initially? I would think it would be hard to explain this new twist to the seller.

 

Does that bring out seller questions like, "What's this all about?"

 

Thanks,

[MichaelC 160]

Speaking of offers, what's the best way?

 

Is the short form offer from the manual the method of choice?

I think so, yes. It's direct and to the point, and hits on the primary terms of the deal. Once that is accepted, the offer can be finalized with a full agreement.

And, what about the blanks for rent credits and option consideration? Do you leave them blank or fill them out initially? I would think it would be hard to explain this new twist to the seller.

 

Does that bring out seller questions like, "What's this all about?"

Assuming I am not receiving rent credits from the homeowner, (and that is usually the case), I leave that in and write $0.00 in the blank. If/when the question about rent credits is raised, I explain what a rent credit is and that I usually receive them from the homeowner. But, this time, I elected not to include them in the deal because I really wanted their business, or something similar. Makes it a positive, as if they are getting a special deal/offer from me. No one ever objects to that.

As for the option consideration paragraph, I delete that entirely before submitting the offer, for obvious reasons.

[Sold ! 0]

Assuming I am not receiving rent credits from the homeowner, (and that is usually the case), I leave that in and write $0.00 in the blank. If/when the question about rent credits is raised, I explain what a rent credit is and that I usually receive them from the homeowner. But, this time, I elected not to include them in the deal because I really wanted their business, or something similar. Makes it a positive, as if they are getting a special deal/offer from me. No one ever objects to that.

As for the option consideration paragraph, I delete that entirely before submitting the offer, for obvious reasons.

<{POST_SNAPBACK}>

 

Michael,

 

I'm assuming I can create a spread by raising the price of the home according to area appreciation (jn our area, it is significant these days). There's my rent credit. Where is this number going to go......in the final agreement? I'm guessing by your response that you're holding that information back, but because you just don't have the answer, yet, right? This is only an initial offer.

 

When you write the Lease and the Option in a CA, the numbers (rent credit and option money) have to come up and go in there somewhere, right? Do you ever get resistance or, "Hey, we never talked about that," reactions? How do you overcome them?

 

I'm writing an initial offer or 2 this weekend and want to do it all on the "up and up," but I'm just not quite sure is an absolute "need to know". I really don't have a spread right now and the option consideration is up in the air until I get my TB.

 

Thanks,

[Kimberly 0]

Rich,

 

I think Michael was referring to the use of the short form when doing a sandwich lease. I don't use the short form for a CA. I talk to them over the phone, and make an initial deal subject to their house passing my inspection.

 

When you're talking with a seller about working with them on a CA, you'll be giving them the NET they can expect to receive. On Rent Credits you'll need to go ahead and fill in that blank. Explain what it is, why you use rent credits (to attract tenant/buyers), and that you'd already calculated it in before you gave them the NET.

 

I write "to be paid" and on "a future date" on the blanks for Option Consideration. If you choose to give the seller some option money upfront, that's what you'd write. If asked you'll need explain that it's the way you get paid by the tenant/buyer, and that it is over and above the NET you gave them. (After you find your tenant/buyer, you'll go back mark through and write in the correct figure and date, both you and the seller will need to initial.)

 

Hope that helps.

 

Kim

[JCannon 0]

Along these lines, I have a question regarding the numbers that go on the CA contracts, this is an example.

 

Seller wants 100k

Rent is 1k per month with 50% rent credits = 6k, if lease lasts 12 mo.

Option consederation is 4k

 

Do I write $110,000 as the purchase price on the contract? Will this throw the seller off? What if I have a T/B that offers more than 4k? Do I change the numbers on the original contract? Will the seller agree to initial this change?

 

These are all pretty obvious questions, I just want to make sure I get it right.

 

Thank you all.

[-Tony- 0]

JCannon,

This is a CA right... First what is the FMV of the property? What is the apreciation for the area?

 

the way I would do it is (assuming fmv 100k w/10% appreciation)

 

You could sell 116k (I consider rent credits to be play money)

I would even go 118-119k just in case appreciation is higher.

 

You also have to remember you get a premium price for terms. From what I have seen with appaisers, if it is only 2-3k they will try to come in at that price.

 

Just my humble opinion but I don't know your market, here people are paying above apraisle.

[Kimberly 0]

Along these lines, I have a question regarding the numbers that go on the CA contracts, this is an example.

 

Seller wants 100k

Rent is 1k per month with 50% rent credits = 6k, if lease lasts 12 mo.

Option consederation is 4k

 

Do I write $110,000 as the purchase price on the contract? Will this throw the seller off? What if I have a T/B that offers more than 4k? Do I change the numbers on the original contract? Will the seller agree to initial this change?

<{POST_SNAPBACK}>

The strike price on the Option depends on the current market value PLUS anticipated appreciation for the length of the lease option. (I'm assuming your market would support the numbers you gave.)

 

Yes, you'd write $100k as the purchase price on the Option. You'd also be writing in the amount of rent on the CA Lease, as well as the Rent Credits on the Option.

 

Sometimes a seller will ask about Rent Credits, you just explain about the Net they can expect to receive and that you already calculated it in. Remember, even when a house is sold through a Realtor, the sale price is NOT the Net the seller receives. Same goes if it is sold FSBO.

 

You don't write in the amount of option consideration when you initially sign the contract with the seller. Why? You don't know what it will be. That's why I write in "to be paid" and on "a future date."

 

At some point it's going to occur to the seller that you aren't doing this out of the goodness of your heart. You've probably already told the seller that you get paid by the tenant/buyer. The seller is already happy with the NET you discussed. The seller is thrilled to get their house, that they couldn't sell, filled with a tenant/buyer who is serious about purchasing their home. They are making more than they would if they sold it themselves, and lots more than if they sold through a Realtor. They'll initial, because they are happy with the money they'll receive.

 

Yes, you have to put in the correct numbers -- the tenant/buyer needs and wants credit for their option consideration.

[MichaelC 160]

I think Michael was referring to the use of the short form when doing a sandwich lease. I don't use the short form for a CA. I talk to them over the phone, and make an initial deal subject to their house passing my inspection.

Rich, if Kim hadn't written the above, I would have. She is absolutely correct. I was thinking along the lines of a sandwich lease when referring to the Short Offer form. The reason being that Craig had mentioned this was his intent with the deal he was working. For a CA, as Kim said.

 

JC, as for the CA deal, you will market the property at the highest price your due diligence indicates is acceptable by the marketplace. Then, you work backwards from there, deducting the rent credits you are offering, and the option consideration you estimate you'll receive. This is the net price to the seller that I emphasize. Almost without exception this will be many thousands more what the seller can expect to net if selling in a traditional manner.

All of the numbers: gross selling price, rent, rent credits, option consideration, and net sales price are all known before hand. Signing the paperwork when we meet is simply a formality.

Now, your question about receiving more option money than expected is a good one. Yes, on occasion that will happen. For example, I'm working with a homeowner on a CA. The homeowner was listed with a Realtor for three months with no takers. Initially, it was priced at $249K, with a few incremental reductions along the way, down to the present price of $239K. What this means to the homeowner is if a buyer were to come along, with an acceptable offer of, say, $235K, after commissions and closing costs the seller's true net would be around $216K.

Now, I set up the CA as follows: $249K purchase price, $1,800 per month rent with a 50% rent credit for twelve months. I expect $6K option consideration, which is mine.

When this deal goes down as planned, the net to the seller is $232,200.

So, then, what happens if some t/b comes along and greases my palm to the tune of $8,500 option money? Not a big deal, really. I've got my expected piece of the deal and I'm happy with it. I call the homeowner with the good news that I can give them and early Christmas gift of $2,500. Everyone is happy when this happens. It's not a problem. It's a good thing, as my girlfriend Martha Stewart might have once said. -_- In this example, and not at all an unrealistic one, the homeowner nets around $16K more than they otherwise would have, and more quickly, at that. I made myself $6K for sharing my smarts. The t/b got the house they wanted today that they othewise couldn't have. And, if the option money is more than expected, you have a homeowner who is singing their praises of you to all they know, (can you say referrals?).

Make sense??