SLO Question

[ErikOk 10]

Hi MC,

 

 

I have a question on a potential SLO deal. I am used to the CA forms, but not the SLO ones.

 

Say I write up the deal using the Residential Lease With Option To Purchase Agreement on page 74 between myself and the seller, and I intend on staying in the deal.

 

But, if something changes in the future, and I wish to assign this contract at some point like the Assignment scenario you outlined on pages 21-23, wouldn't there be a problem with assigning the tenant buyer the Residential Lease With Option To Purchase Agreement on page 74, especially with section 15 Assignment and section 20 Right To Cancel?

 

Am I also correct in understanding the the Assignment of Agreement on page 95 would be used instead of the CA Assignment of Agreement?

 

Thanks,

Erik

[MichaelC 160]

But, if something changes in the future, and I wish to assign this contract at some point like the Assignment scenario you outlined on pages 21-23, wouldn't there be a problem with assigning the tenant buyer the Residential Lease With Option To Purchase Agreement on page 74, especially with section 15 Assignment and section 20 Right To Cancel?

What potential problems are you seeing? As per paragraph 15 you have the right to assign the deal, and as per paragraph 20, your right to cancel is for, say, 15 days. If you assign the deal two months later, that cancellation clause is a moot point.

And, yes, that is the correct assignment agreement that you referenced above.

[ErikOk 10]

But, if something changes in the future, and I wish to assign this contract at some point like the Assignment scenario you outlined on pages 21-23, wouldn't there be a problem with assigning the tenant buyer the Residential Lease With Option To Purchase Agreement on page 74, especially with section 15 Assignment and section 20 Right To Cancel?

What potential problems are you seeing? As per paragraph 15 you have the right to assign the deal, and as per paragraph 20, your right to cancel is for, say, 15 days. If you assign the deal two months later, that cancellation clause is a moot point.

And, yes, that is the correct assignment agreement that you referenced above.

 

MC,

 

I see I wasn't clear on my concerns. If I assign the Residential Lease With Option To Purchase Agreement that I have with the Seller to the Buyer, then the Buyer takes my position in that contract. My concerns are really for the Seller, because:

 

1: The contract is pro-Buyer, not Seller, so it wouldn't protect the Seller as much as the separate Lease and Option agreements (like the ones used between myself & a tenant buyer)

2: The way Section 15 Assignment is worded, it appears to me that the Tenant/Buyer that I assign to would acquire the right to assign again. Would it possibly be a good idea to put "original Tenant/Buyer" in place of Tenant/Buyer.

3: In Section 20 Right to Cancel, I realize that there will be "x" number of days to cancel from the date the contract is signed. But, wouldn't it be better to explicitly state "original Tenant/Buyer" in place of Tenant/Buyer, just to make sure there are no misunderstandings?

 

Again, I wouldn't be looking to get out of the deal, but if something like your description on pages 21-23 occurs, I want to make sure I understand my exit and that the Seller isn't left in a weakened position.

 

Thanks,

Erik

[MichaelC 160]

Erik, you need to understand that the agreements we use in a sandwich lease are pro investor, (you), not pro seller as in a CA. You can change some things if you want, but keep in mind that the less pro investor the agreement becomes, the less valuable it is to another investor/assignee.

[lomax_properties 5]

Also Erik,

 

Why are you thinking about assigning the agreement, are you looking at getting cashed out. You may think about this scenerio, which is what you may be thinking, however, from what you wrote seems like you are looking at assining the agreement to the TB. What if you do the SLO, so you sign the lease w/ option to buy, then you LO to a retail TB which now you have an equity spread and cash flow spread. You collect your 3-5K option fee. Now with the TB in place you decide you want to assign the agreement.

 

Go to your local REI find someone who wants to own a rental and now you can assign the agreement to another investor collecting more assignment fees..

 

BOOM BABY

 

Now you got paid an assignment fee and option deposit and perhaps it took a few months so you collected a few hundred dollars in cash flow and now you are completely out of the deal.

 

Maybe that will work for you.

[ErikOk 10]

Why are you thinking about assigning the agreement, are you looking at getting cashed out.

I wasn't necessarily looking to get out of the SLO, but was just trying to keep my options open; If I wanted to get out of the SLO for any reason.

 

You may think about this scenerio, which is what you may be thinking, however, from what you wrote seems like you are looking at assining the agreement to the TB. Correct

 

What if you do the SLO, so you sign the lease w/ option to buy, then you LO to a retail TB which now you have an equity spread and cash flow spread. You collect your 3-5K option fee. Now with the TB in place you decide you want to assign the agreement.

 

Go to your local REI find someone who wants to own a rental and now you can assign the agreement to another investor collecting more assignment fees..

 

Now you got paid an assignment fee and option deposit and perhaps it took a few months so you collected a few hundred dollars in cash flow and now you are completely out of the deal.

 

Maybe that will work for you.

Yes, this would be another choice. But, like you mentioned I was asking about assigning to the T/B.

 

The thing I was trying to figure out is if I do assign to the T/B:

1: What happens to the option consideration the T/B gave me? Obviously I would keep it, but since it applied to the contract between me and the T/B and now the T/B has been assigned the contract with the Seller, how is that option consideration handled?

2: Assignment fee for assigning my contract with Seller to T/B is not credited in anyway to the sale between the Seller & T/B.

3: Original contract between myself and the T/B must be cancelled because T/B now has agreement directly with Seller.

 

 

My idea is that if there was enough equity in the deal then the T/B would be open to paying the option consideration & assignment fee if that combined value was less than the equity gained. Say for instance Option consideration + assignment fee = $8,000 but T/B gains an equity of $17,000. Basically they would be "credited" for the money they put down, because there would be a price reduction (original price in the agreement between me and the T/B was more than the price between me and the Seller).

 

[<Steve> 82]

Although with the Naked agreements you are able to cancel at anytime, I also break up a SLO that is let's say 3 years, into three 12 month intervals. Every 12 months I can extend or cancel the agreement with the seller. The T/B's term is 12 months. I did this with a SLO I had that was not performing. The tenant/buyer wanted to stay and the seller was Ok with being the landlord. I canceled the agreement with the seller, and the t/b's agreement expired. Then the seller and t/b went into their own agreement and I was out of the deal. Nothing I could do about the option consideration and rent credits as the tenant/buyer reached the expiration of our agreement.

[Propertymagnets 7]

This is some delicious, creative thinking! Thank you for this insight and strategy.