John Jackson & LeasingToBuy - A Review of What I Learned

[Guest jvmccall]

Well a few months ago, I spent a couple days with John Jackson & I told some people on this board how much I enjoyed my time with him. I also mentioned that what I learned dramatically changed my business. Many of you have been asking me to update the board on some of the things I learned - so here I go. I am not affiliated with John or his company. I am not making any profit by recommending his business. I am just sharing some of what I learned and how it revolutionized my business.

 

The best thing about John is that he is a guy who takes action & he keeps his business simple. He has found something that works & he has perfected it. He has one of the most successful Lease Option / Cooperative Assignment businesses in the United States. And he is doing it all in Texas, a state where it is supposed to be illegal to do lease options! And he learned a lot of his business from MichaelC and the people on this board.

 

John has been doing this biz for 6 yrs. He really only does Cooperative Assignments. He consistently does 2-5 deals per month. He has about ~20-30 homes on his website at any given time. He probably has 2-3 “reps” helping him sell his homes outside of his 30 minute drive.

 

I found some of John’s posts on this board, and later found the website for his business (www.LeasingToBuy.com). I discovered that he teaches a class where he basically gives you his business in a box. And then when I learned that approximately 80% of his tenant-buyers get a mortgage in 6-8 months, I decided I had to go visit him.

 

These are some of my notes and they are in no particular order. This is not a recap of everything I learned, but mainly action items that really challenged me and the way I used to do the business.

 

1) SIMPLE. John keeps his business simple. He doesn’t try to do many different things. He does one thing, and he does it well. He is focused. (Although he will say that is one of his biggest challenges. Well, compared to me then, he is super duper focused.)

 

2) He works with tenant-buyers throughout the entire lease option period. He only takes on people he thinks has a realistic chance of getting a mortgage in 6-12 months. (Hello…! Read that again!)

 

3) He puts his tenant-buyers in a really good credit repair program with someone locally that he personally knows and works with regularly. He stays on top of the communications between the tenant buyer and the credit repair company. He stays involved. He even pays for part of the credit repair.

 

4) He knows a good mortgage broker who works closely with his credit repair company.

 

5) He is very familiar with current FHA mortgage guidelines. He works hard to make sure his tenant-buyers are as close as possible to getting a FHA mortgage before the lease option period starts. He looks closely at their debt to income ratios, their down payment, their past credit history, how far removed from a foreclosure and a bankruptcy they are, etc. He also makes sure the price of the houses fall under the FHA mortgage limit guidelines.

 

6) Why is this so important? Like everyone else, I used to advertise “No Credit Qualifying! Good, bad or ugly credit – you’re approved!” As long as the tenant-buyer had a large enough deposit, I accepted them. John tells everyone to stay away from investors who do business like that. So…. I don’t advertise things like that anymore. I now look more closely at a tenant-buyer’s credit report. (This is so very important!) It is not fair to the tenant-buyers (and to the seller) to set them up for failure from the start. As investors, we should know better than to put someone we know has no chance to get a mortgage in 1-2 years. So why are you putting a tenant-buyer in a house that just had a foreclosure 2 months ago?

 

7) He advertises a minimum of 3.5% down on all his homes. Why so much? The easiest loans to get today are FHA loans. Current FHA guidelines require 3.5% down. Face it - if a tenant-buyer only has $3,000 now, but they need $6,500 to get a FHA mortgage in 12 months, what are the chances they are going to get that additional $3,500 during the lease option period? Very, very slim. And if you don’t agree with me, then you haven’t been in the business long enough.

 

8) If the tenant-buyer has more than the minimum required option consideration, John tells the tenant-buyer to save that money and use it to rebuild their credit so they can get a mortgage faster (i.e. do what the credit repair company says to do with the money.) I used to play this game where I would not advertise what my minimum option consideration was. I would ask the applicant how much they had. They would usually reply with, “Well, how much do you need?” To which I would say again, “It depends. How much do you have?” I would play this stupid game to try to see if they had more than my minimum requirement. For example, if I wanted $3,000 (really only 2%) and they said they had $10,000, I would say, “Well, I think we might be able to work with that.” Then I would accept them pretty much without looking at their credit. I would pocket all that extra money. Yes, the tenant-buyer would get all that money back IF they bought the house, but do you see the difference? That money would have been better spent paying back some of the bad debts and judgments on their credit reports so they can get a mortgage quicker! (This whole concept was totally revolutionary to me!)

 

9) Again, John stays involved with the tenant-buyer during the entire lease option period. He does not manage properties, and the seller gets all the rent every month. But he tells sellers that if the tenant-buyer is ever late on their rent to call them first, and then immediately call him. He will then get on the phone with the tenant-buyer to find out what’s going on and “encourage” them to pay the rent ASAP. He even offers to pay the attorney’s eviction costs if there has to be an eviction. It’s really only a couple hundred dollars. He then helps the seller find another tenant-buyer.

 

10) If a tenant-buyer’s debt to income ratio does not meet FHA’s minimum criteria for a particular house, John finds a house for the tenant-buyer where it does work. In other words, he only puts tenant-buyers in houses they can afford!!!! As a general rule of thumb, their income should be 3-4 times the rent. And if you take their annual gross income and multiply it by three, that should be the house they can realistically afford. So if there monthly income is $3,000, the most the can afford in rent… generally… is $1,000 ($3,000 / 3). And if their annual income is $36,000, they should only be looking at homes in the $108,000 price range ($36,000 x 3). I used to completely ignore these numbers before. As long as they had enough deposit, I accepted them.

 

11) John’s agreements are non-exclusive. He allows the sellers to advertise their property and list it with a Realtor. You really have to ask yourself if what you are doing is in the Seller’s best interest. Only when you are doing what is in the Seller's best interest, and when you are more interested in how you can help them meet their needs, will your business really grow.

 

12) All calls from sellers and tenant-buyers go directly to John, or to one of his reps. He doesn’t make them jump through a bunch of hoops to talk to someone. He doesn’t make them listen to a 5 minute pre-recorded message, then answer 20 questions from an un-interested operator, then make them leave a message for him to call back later when it’s convenient for him. This business is about customer service and doing things better than other investors out there. You have to be accessible. If you aren’t, you’re going to lose a lot of business. (I have learned this the hard way.) You don’t have to spend 20 minutes on the phone with everyone. He is on and off the phone very quickly (with tenant-buyers especially).

 

13) You might think with such tight pre-screening John rejects a lot of applicants. But really, since he actually advertises what his minimum option consideration is (3.5%), and he prescreens the callers so well over the phone, he really only rejects about 30% of his applicants.

 

14) Yes, it takes him longer to fill his houses because it’s harder to find tenant-buyers who are 6-12 months away from getting a mortgage. But that’s why he has so many houses on his website. If you want to do 3+ deals a month, you need to have a lot of inventory. And look how much easier it is to get that kind of inventory when you can tell sellers that most of your tenant-buyers get mortgages in 6-12 months!

 

15) John markets to listed properties - and that is the only marketing he does! I about crapped my pants when I heard this. He sends simple tri-fold brochures to listed properties & FSBO’s. For every 1,000 flyers he sends, he gets about 3-5 deals. If he gets an angry call from a Realtor, he doesn’t argue with them. He just apologizes and hangs up. It’s not worth the fight. If a seller calls him and is interested, he tells them to talk to the Realtor and tell him/her that they want to lease option their property in addition to selling it with the Realtor. He doesn’t get involved with the Realtor and he doesn’t try to cancel their listing agreements. He is just giving the seller more options. He lets the seller worry about the Realtor. (Note: I am not doing this because will be getting my license in a few weeks and Realtors cannot market to listed properties. Plus, the other marketing I do is going really well for me and it’s much cheaper. But this is a great strategy and I wouldn’t ignore it!)

 

16) He only takes on nice homes in the median price range.

 

The key to all of this is to take the bull by the horns and get on for a wild ride. Take action. Just do it. Don’t be afraid to make mistakes. It takes work, a lot of effort, and a lot of determination. Don’t wait until you get it all figured out. Get a coach or a mentor. Don’t be discouraged. Plug into your local REIA’s. Create a local mastermind of like-minded investors. Find someone that can hold you accountable to your goals.

 

That’s it for now I guess. I am sure you will have some questions, so fire away! Do you think I am smoking crack and have drunk too much koolaid? I have learned a lot from this board, MichaelC, John Jackson, and everyone else here. I am just giving a little bit back and trying to share the love!

[Jason (AL) 1]

Thanks for such a detailed explanation, Joe.

I really do enjoy each of your posts and contributions

to the board.

I've been out of the real estate biz for a few months

now, as I've been busy with other things. Heck, I even

kinda questioned the whole CA model. But my hesitant

state of mind revolved around not being in control of

what happens AFTER the assignment takes place. I never

was comfortable with the "taking the $ and on to the next one"

routine. I now have a better outlook on the whole process

and may jump back into the CA biz.

 

Thanks again. And also, thanks to MC, Adam, John, and others

I've learned this great business from.

[dionwisn 0]

Same here Joe. Thanks for all you contribute freely to us here. I've adopted some of your techniques and have seen a difference. Your a true lease option "MAVERICK" in my opinion. So are you Mike I still love you!

[Rosanna 1]

Thanks so very much for all that info Joe. That was great! I am curious though, if Joe is doing strictly co-op's, why is he so concerned with what happens after he assigns himself out of the deal as far as making sure the t/b can get a mortgage? And also why does he stay involved if the t/b doesn't pay rent? He isn't in a sandwich so there isn't anymore money in it for him at the back end. Is it so he can say to the seller that most likely the t/b will be buying the home after 6-8 months?

 

Thanks again and i just love your posts,

 

Rosanna

[Guest jvmccall]

Thanks so very much for all that info Joe. That was great! I am curious though, if Joe is doing strictly co-op's, why is he so concerned with what happens after he assigns himself out of the deal as far as making sure the t/b can get a mortgage? And also why does he stay involved if the t/b doesn't pay rent? He isn't in a sandwich so there isn't anymore money in it for him at the back end. Is it so he can say to the seller that most likely the t/b will be buying the home after 6-8 months?

 

Thanks again and i just love your posts,

 

Rosanna

John stays involved because it is the right thing to do. Also, it helps him get more business in the future if he is able to tell sellers that he has helped xx% of his tenant-buyers get a mortgage within 12 months. It's really about principle and reputation. You will find that the longer you do this business, if you're good at what you do, you will get tons of referrals. 

 

Also, it's important to recognize that most tenant-buyers will not just repair their credit on their own. A lot times they need a kick in the butt, a lot of encouragement and some persistent accountability. 

[boazbama 0]

Hi Joe,

 

Thanks so much for posting this it was greatly appreciated.

 

I had one question. I see your getting your real estate license. Do you see having your license as

a benefit in your Lease Purchase business?

 

Thanks again for sharing your experience.

[Guest jvmccall]

Hi Joe,

 

Thanks so much for posting this it was greatly appreciated.

 

I had one question. I see your getting your real estate license. Do you see having your license as

a benefit in your Lease Purchase business?

 

Thanks again for sharing your experience.

Yes & no. If you want to do the type of marketing that John Jackson is doing, then no you shouldn't get your license. There's a lot to be said to have the freedom to market to listed properties.

 

But, I think it would be to your advantage to get a license for several reasons (and it's perfectly okay to disagree with me here):

 

1) It lets you avoid all the questions about dealing without a license.

2) It gets you access to the MLS, which is invaluable for finding comps & doing your marketing.

3) It opens the door to networking with other Realtors who touch 80% of all buyers and sellers out there. Realtors can start giving you leads for sellers and buyers.

4) You could possibly make more money as a Realtor when doing Cooperative Assignments. You could possibly get the front 3% and the back end 3% as a commission.

5) You could also make money by actually listing properties for sale and making a commission on them when you sell the traditional way. Let's say you find a seller who has their property for rent. You could approach them about the Lease Purchase strategy and if they are okay with that, you could also ask them if they would like you to list the property to give them even more exposure. You can also refer these deals to another Realtor in your office who can share some of the commission with you.

 

Let me be clear, you do not need a license to do this great CA business. Whether you are a Realtor or not, you still are the "principal" acting on your own behalf who has an equitable interest in the property you are buying and selling for yourself. If you get your license, you can still do things in your own name (or not - it's up to you!). You just need to disclose to everyone you deal with that you are a licensed agent. Not a big deal really. If you do get your license, the key is to find an investor friendly broker.

 

I understand both sides of the debate. For me, I think just having access to the MLS and avoiding the incessant "dealing without a license" questions are worth it for me. Also, I am excited about opening a whole new window of marketing to buyers and sellers through the Realtor network... So we'll see! I will let you know how it goes.

[timmym22 0]

Joe,

Great post! Great information!

 

Here are some of my questions:

 

1. I am marketing the same way you are with craigslist for rent by owners, it seems that most of my calls are from Investors that have property, they know enough about rent to own, but yet are curious what i can do for them. I have signed up a few deals with them, one investor got it rented before i found someone with 3% down, the other investor and I agreed to have rent at $900 a month and then he rented it out quicker than I found a tenant buyer, he also advertised his home for $775 a month on craigslist. So I guess I am trying to change my marketing a little bit to just find the "typical" homeowner, instead of the investor that advertises on craigslist. what other sites do you market to for the "typical" homeowner?

 

2. I am still having difficulty getting the whole down payment from the tenant buyer. Most sellers I am talking to want some sort of security deposit because of potential repairs if the tenant buyer does not buy, how do you overcome this objection?

 

3. Does John ever take back a note for some of the 3.5% down payment, or is it all cash or no property?

 

4. I guess the big selling point for the seller on this is the 80% closing rate of the tenant buyer getting a mortgage in 6-12 months, how do you tell the seller this without guaranteeing this will happen?

 

5. With non exclusive deals, is it pretty common to lose quite a bit of the deals bc the seller finds a renter or they sell their home?

 

6. I am struggling with being more efficient with the business, I know that I will close more deals if I go meet the seller, however, I don't want to be driving all around the city without knowing that I am going to do business, how do you operate when trying to close deals? Also, what about taking pictures of the home and putting out the signs? What about showing the home?

 

7. what does he pay for with the credit repair company? If he has to pay for the evictions cost, does he get the option money for the new tenant buyer moving in as well?

 

thanks for all the help joe

[Tmartinloan 0]

How much does John charge? Does he split the non refundable deposit with the realtors or does he take the non refundable deposit plus the first months rent? Or do the realtors only get paid when the house sells?

 

thanks

[pilot76180 51]

Many thanks for the kind words Joe!! Not only was your post lengthy and informative, it had no typo's that I immediately saw...so that is something to be proud of my friend!

Cudos to you for hitting so many very important topics and points, that may otherwise be overlooked. I think I'm as excited as you are at seeing your new baby evolve and grow, knowing that you now have a system and flow of things. It's important for everyone who reads your post not to misunderstand, and think that since you now have a plan though, that you only have to sit back and enjoy now. I know when you left you were thinking, "Wow..I have a CRAP load of things to do..and I have to get going NOW!" It takes time to put those things in place, and you are doing very well. Just focus on the program, and why you are doing what you do.

**I say the following to be helpful and hopefully generate some thought, so PLEASE don't take this as condescending in ANY way!!***

I saw Timmy's 7 questions and I'm sure he has many many more. I think the first question Timmy or anyone else reading the post should ask themselves is "What is my plan?" If you don't have a plan, a simple, actionable game plan, then does it really matter what I pay for credit improvement? Does it matter that I never pay Realtors a dime? Does it matter that I never cold call or scour websites?

Joe can fully attest now, that my focus isn't on the minutia, it's on the SYSTEM. The PROGRAM. Which is simple, and clear cut.

I think I may have irritated a few people with a post I made many many moons ago, but I think it is the SINGLE, MOST IMPORTANT POST I have ever made here. (outside of one I think I made about a chic and goat urine...)

I really do wish you all the best here in the world of Carbonare!

http://www.naked-investor.com/forums/index...p;hl=pilot76180

[randian 0]

One of the more obvious questions is related to seller's net. The traditional appeal of CAs is what the seller nets compared to realtor-assisted sales. If you're adding your assignment fee and rent credits on top of the realtor's commission the seller is now netting quite a bit less, not more. How is that sold?

[Guest jvmccall]

Joe,

Great post! Great information!

 

Here are some of my questions:

 

1. I am marketing the same way you are with craigslist for rent by owners, it seems that most of my calls are from Investors that have property, they know enough about rent to own, but yet are curious what i can do for them. I have signed up a few deals with them, one investor got it rented before i found someone with 3% down, the other investor and I agreed to have rent at $900 a month and then he rented it out quicker than I found a tenant buyer, he also advertised his home for $775 a month on craigslist. So I guess I am trying to change my marketing a little bit to just find the "typical" homeowner, instead of the investor that advertises on craigslist. what other sites do you market to for the "typical" homeowner?

 

2. I am still having difficulty getting the whole down payment from the tenant buyer. Most sellers I am talking to want some sort of security deposit because of potential repairs if the tenant buyer does not buy, how do you overcome this objection?

 

3. Does John ever take back a note for some of the 3.5% down payment, or is it all cash or no property?

 

4. I guess the big selling point for the seller on this is the 80% closing rate of the tenant buyer getting a mortgage in 6-12 months, how do you tell the seller this without guaranteeing this will happen?

 

5. With non exclusive deals, is it pretty common to lose quite a bit of the deals bc the seller finds a renter or they sell their home?

 

6. I am struggling with being more efficient with the business, I know that I will close more deals if I go meet the seller, however, I don't want to be driving all around the city without knowing that I am going to do business, how do you operate when trying to close deals? Also, what about taking pictures of the home and putting out the signs? What about showing the home?

 

7. what does he pay for with the credit repair company? If he has to pay for the evictions cost, does he get the option money for the new tenant buyer moving in as well?

 

thanks for all the help joe

 

1) When I am looking at Craigslist, it is sometimes easy to avoid the professional ads. I avoid the ones that already advertise lease options, "bad credit okay", the HTML ads, any ads that say anything about them a company or management, any ad with a website etc... You will still find that you talk to a lot of investors or realtors, but that doesn't mean you can't help them too. Probably half my deals are with investors.

 

2) I tell them again all that I doing for them. I am not just walking away. I am working with the t-b during the lease option period to rebuild their credit. I sometimes even ask them if they really expect me to do this for free. It costs me a lot of time and money to market their home. I also remind them again how fast I can usually fill my homes. They can still sell the home on their own if they want, and if they find someone first, they can keep all the money. Finally, I tell them that if the tenant-buyer I find for them has to be evicted, I will pay the attorney eviction costs (of a couple hundred dollars). Plus, I will find them another tenant-buyer the next time & they can keep the entire option deposit. They will just have to pay me $500 for my marketing costs. If this still doesn't do it, I will tell them that I probably can't help them and get off the phone as quickly as possible. You've got to remember that you are only looking to deal with motivated sellers. Don't waste your time with people that are unmotivated.

 

3) No, we don't normally take notes back for any money they are short. The fact of the matter is that most tenant-buyers who don't have the money up front probably will never come up with it later. If I do take a promissory note, it will only be for a short period of time & only for people I know who not have a problem paying it. I might accept 3-6 months of payments, with post-dated checks.

 

4) You just tell them that "while I can't guarantee results, typically 80% of our tenant-buyers get financing in 6-12 months..." Just be honest with them.

 

5) It is not common. Maybe 20% of my deals.

 

6) Get a local selling assistant. John / Pilot has a recent post about outsourcing to his "IC's" (Independent Consultants). In fact, I think he just referenced that post in a recent post from yesterday or today. Look for it. I pay my local guy $500 for each house he helps me sell.

 

7) I don't know. Probably $300 for the sign up fees, and the tenant-buyer pays the monthly. Second part of the question - it depends... Just do whatever you feel comfortable with...

[lhenley 8]

15) John markets to listed properties - and that is the only marketing he does! I about crapped my pants when I heard this. He sends simple tri-fold brochures to listed properties & FSBO’s.

 

 

In John's brochure, does he have a statement such as "If you're home is presently listed with an agent, call me when your listing expires" ?

 

Lynn (FL)

[Tmartinloan 0]

I dont understand how is assigning the contract for a 3% option fee??

 

For FHA the buyer still needs to come up with a req 3.5% downpayment in order the purchase the house??

 

please explain how they apply an option deposit towards the purchase?

 

thanks

[randian 0]

I dont understand how is assigning the contract for a 3% option fee?? For FHA the buyer still needs to come up with a req 3.5% downpayment in order the purchase the house??

As I understand it, most lenders will treat option consideration as a hard down payment, so long as it's paid in a cash lump sum and distinguishable from rent. Rent credits, on the other hand, are usually treated as a reduction in price rather than as down payment.