Jump to content
The forums have been archived and are now read only. Years of great info saved for your reading pleasure. Thank you! Visit us on Facebook: https://www.facebook.com/NakedInvestor/ ×
The Naked Investor Forums
caboarder2001

CA or SLO

Recommended Posts

Hey everyone I am new here. Been trolling for quite some time, I ordered the manual and its in the mail. If the question I'm asking is answered in the manual, please excuse me, I can no longer hold back my enthusiasm.

 

When do you pursue a CA rather than a SLO? In a CA you make less $, although they are easier to get the owner to agree to. So do you start out pitching the idea of the SLO, then if your not getting anywhere you warm them up to the CA? Why not go for the SLO and make more money on the whole deal? Thanks! :D

 

Corey

Share this post


Link to post
Share on other sites

Hey Corey-

 

Smart move getting the manual. :D

 

That is what I do, is pitch for a SLO first and then I will always ask the seller if they would consider doing a CA. Then I do the comps and let the numbers and the property type dictate which one I will do. I think the SLO is easier to sell to the owner, as there are more Advantages for the seller; however, you do stay in the deal longer with an SLO and there is more risk; but with the risk comes more $$. CAs are great because you are in and out of the deal and off to the bank. And CAs are a good way to get rolling in this business.

 

Welcome aboard! and I'm sure MC will be around to give the official salutation.

Share this post


Link to post
Share on other sites

Hello, Corey, and welcome to The Naked Investor!

There are pros and cons to both approaches. True, there is more money to be made with a sandwich lease. But with that extra dough also comes the responsibilities of being a landlord. Not a bad thing, but it's not for everyone. With a CA, you make your quick cash upfront and then you're on your way. So if you're looking for monthly cashflow or backend profits, obviously this type of deal won't get it for you.

As for which way to go, it's your call. What do you want to do with a particular deal? What does the homeowner want and need from you? And what do the numbers indicate is the better approach?

Share this post


Link to post
Share on other sites
That is what I do, is pitch for a SLO first and then I will always ask the seller if they would consider doing a CA. Then I do the comps and let the numbers and the property type dictate which one I will do. I think the SLO is easier to sell to the owner, as there are more Advantages for the seller; however, you do stay in the deal longer with an SLO and there is more risk; but with the risk comes more $$.

 

How are there more advantages to the seller doing a SLO, besides the seller not having to be a landlord/qualify tenants/collect rent and all that? From the sellers standpoint, is it really worth giving up future appreciation and excess monthly rent to not have to deal with the landlord hassle?

 

Also you and Michael said that it depends on the deal whether it will be a SLO or CA. What determines, from our side, whether it will be a SLO or a CA?

Share this post


Link to post
Share on other sites
How are there more advantages to the seller doing a SLO, besides the seller not having to be a landlord/qualify tenants/collect rent and all that? From the sellers standpoint, is it really worth giving up future appreciation and excess monthly rent to not have to deal with the landlord hassle?
Yes! No land lording head aches is a plus in the mind of a seller. And if we set up the SLO correctly with a screened tenant/buyer, managing the tenant/buyer is really not a problem for us either. The majority of the SLO sellers I work with live out of town or out of state and thier property is here.

 

Also you and Michael said that it depends on the deal whether it will be a SLO or CA. What determines, from our side, whether it will be a SLO or a CA?
Typically I want more equity in the property to receive a larger option consideration and a good positive monthly income that makes it worth my time. If I have a property for say 3 years and the tenant/buyer decides after a year they are going to move, I need to place a second t/b quickly. I will offer 75% to 100% rent credit to fill a vacancy as fast as possible. I am not in the business of making the seller’s monthly payments, so the extra equity allows me to do just that. Not to mention any potenial backend profit.

 

Equity is your comfort zone in a SLO because you can adjust the price, rent, rent credits and option consideration while you hold possession of the property.

Share this post


Link to post
Share on other sites

Thanks steve!

 

And speaking about t/b's leaving a year through in, do many t/b's do this? I mean if its a 200k property, and you charge them a 5% OC, then thats $10K. Do t/b's really walk away from this amount of money just because?

Share this post


Link to post
Share on other sites

Corey-

 

Most of the time tenant/buyers want to extend the lease after the first year. And if they are taking care of the property, paying the rent and still have an interest in purchasing it, I will extend the lease another 12 months to keep the cash flow going. You may even be able to get additional option consideration for a second year.

 

We are in a crazy economy and people are moving around for work, job transfers etc. I make it clear at the start to the t/b that if they do not buy, the option consideration is non-refundable. And they agree in writing. Later, if they decide not to buy and move, they know they loose what they have put into the property.

Share this post


Link to post
Share on other sites
. . .And speaking about t/b's leaving a year through in, do many t/b's do this? I mean if its a 200k property, and you charge them a 5% OC, then thats $10K. Do t/b's really walk away from this amount of money just because?
T/b's walk away from option consideration often. Not "just because". But circumstances change and so do plans as a result. Don't be surprised when you find it happening to you, Corey.

Share this post


Link to post
Share on other sites

×
×
  • Create New...