Something I don't understand...

[joshril 0]

Ok, this is what I don't understand. What happens to the t/b's option fee if the owner defaults in some way... in a typical lease option, the t/b would get the option fee back.

 

Also, do you raise the price the price you offer the seller to account for the option fee being applied to the down payment?

[Jonathan RexfordFL 8]

If seller defaults then TB'er has a choice.....ask to get money back, Sue to get money back, or walk.

 

As far as raising the price.....it depends if the deal can afford it and based on what you are working with.

[MichaelC 160]

What happens to the t/b's option fee if the owner defaults in some way

First, that should be addressed to some extent in the paperwork. While not guaranteeing the t/b full protection, it does help should a legal matter arise.

Second, this is a reason why the homeowner shouldn't be trusted to make those monthly payments. Either the t/b should, or an arrangement needs to be made to make the payment to a third party such as an escrow company to handle the payments.

Still, there is never a 100% guarantee that all will go as planned. . .in any venture.

[ogbuff 0]

What if this is a CA lease option? Do you have any liability if the seller defaults? After all, the option payment goes to you, and not the seller, so can the T/B ask for refund from you? I am waiting for the manual right now, so if this answer is in there, then sorry for asking.

 

Thanks,

Paul

[Gordon Holtner 0]

The option fee is nonrefundable to the Tb in the event that the seller defaults.No under MC's contracts you have no liability. Lets be honest here though the Tenant Buyer could just as easily decide to stop making rent payments and could be evicted. There are no guarantees that either the Tb or Seller will keep up their end in any deal. If you are worried for the Tbs just inform the TBs how to protect themselves in the deal.

[MichaelC 160]

What if this is a CA lease option? Do you have any liability if the seller defaults? After all, the option payment goes to you, and not the seller, so can the T/B ask for refund from you? I am waiting for the manual right now, so if this answer is in there, then sorry for asking.

 

Thanks,

Paul

Paul, the paperwork we use in a CA protects our position. And that is one of being out of the loop legally once we assign the deal. Of course, that doesn't mean some knucklehead can't try to sue us, but for the most part we are long out of the picture and released of all liabilities.

[ogbuff 0]

Thanks for the helpful replies. One other question. When starting off, do you recommend only doing CA lease options, as they are clean, no liability as soon as deal is done, instead of a SLO, where you're receiving and paying payments every months, and are waiting for the T/B to either close the deal, or not?

 

Thanks,

Paul

[MichaelC 160]

That's your call, Paul. Generally, CA's are certainly easier for the n00b to pull off than other types of deals, such as a sandwich lease. As you noted, less risk and all but zero liability. Much less resistance from homeowners, too. So for the new guy they are pretty tough to beat.

On the other hand, if a deal falls into your lap and the numbers work, you might find yourself facing a decision to do a sandwich lease. Weigh the risk to reward ratio before making your call. While that sandwich lease has more profit potential, it also has more potential for things to go wrong. Only you can decide if, in the worst case scenario, say a vacancy, you could weather the storm and come out unscathed.