Another question about assigning L/O's

[Joe Lee 0]

I was chatting with other creative RE investors, and I wanted to know what they thought about assigning a lease option to the tenent/buyer for fast profits was something they'd do. And one told me that if I assigned a lot of L/O's and enough of them went downhill after I assigned the lease option to the buyer(per say them having to evict with no other legal recourse on me cause I was released from any liability from the deal) that the district attorney may be breathing down my neck if enough of these go bad, and the real estate commision may come after me for acting as a realtor EVEN THOUGH i have the legal right to assign, and state that I have an equitable interest in the property that I can sell off to someone. I just dont want to look like I found a 'new trick' to make fast cash at the expense of the seller and buyer.

 

Your thoughts?

[MichaelC 160]

My thoughts are you have a greater chance of winning the Powerball Lottery, twice, than you do of having the DA come after you for assigning a lease purchase agreement.

First, you would have to assign a hell of a lot of deals to attract any kind of attention from the DA's office.

Second, you would have to be extraordinarily unlucky to have a group of homeowners get together and march en masse down to the DA's office to vent about you.

I don't mean to make light of your question, Joe, but there are always going to be those you talk with who will scream at you that the sky is falling. There will always be those you talk with who will be anxious to pass along their negative energy to you, if you let them.

My advice is to run your business ethically and honestly and, by and large, the scenario you described is highly improbable, if not downright impossible.

[Joe Lee 0]

I see what you are saying. But they are telling me that it would be better for me to stay in the middle, and stay in control incase anything funny happens. But I do like the idea of 'in-and-out', thats why I asked them about it to see what they thought.

 

Besides, when I do want to assign, what do I tell the seller why I want to do this? what do you normally tell them and what are their usual responses??

 

Thanx-

[MichaelC 160]

Joe, who are "they", and what specific experience can they quote as to why assignments are so dangerous?

I will repeat what we have already discussed about assignments. I am not an attorney. But my experience as an investor is that assignments are not any more problematic or dangerous than other real estate transactions you might find yourself in. This, of course, is assuming you have the correct and proper agreements in place to protect your position.

You don't need to explain your justification to the seller for why you chose to assign your agreement. If you feel you want to, you can explain that there wasn't enough room for you to be in the middle of the deal, and the only way you could make it work was by assigning the contract and eliminating yourself as the middle man. I would further explain that all the terms remain the same, and that the only thing that has changed is the person who will be making the monthly payment to the homeowner.

[Joe Lee 0]

"they" are the other investors I spoke about .www.CameronDirect.com it's a site like yours being devoted to creative real estate, but that site is a but more general than this one is. I'll give you the link to the forum post so you can have a look see

 

http://forums311.camerondirect.com/forums3...Message_ID=7742

 

Hope this makes their side more clear to you.

 

-Joe

[MichaelC 160]

Joe, I took a look at the link you provided. If I'm understanding that thread you started, the opposition to assignments seems to be from an ethical standpoint, rather than the legal.

Someone implied that if you go out and assign all your deals to "some loser" that you are asking for trouble from the disgruntled homeowners.

This may be so, but one thing jumps to mind immediately. Why is it assumed that the assignee is "some loser"? If an assignee pays me, say, $3,500 assignment fee and is shrewd enough to know the marketplace and negotiate me out of the way so he can enjoy the benefits of the deal I originated, I wouldn't classify him as a loser.

The other thing that strikes me is before anyone attracts the attention of the DA's office, the local Real Estate board, and the community in general, you would really need to be a mover and a shaker in the local real estate investment community.

Joe, I've said it before but it bears repeating. Run your business honestly and ethically and your problems will be minimal. That certainly includes you doing assignments if that is your preference. On the other hand, if after all your analysis you are more comfortable by remaining in the middle of the deal, that's great, too. Then do that.

But, what I definitely want you to do is to stop the Paralysis of Analysis I am sensing, and start marketing and making offers.

[Joe Lee 0]

So you would wait until the T/B wants a 'better deal' before assigning to them? and that would show their competance to handle the lease option? And lets say I'd suggest to the buyer about the assigning for the better terms so I can get out, how should I handle that?

 

I do like these 'assignments' for the quick in and out value, I hope to do 3-5 of these before I do lease options where I have the holding power to stay in the middle.

 

Also, off the subject for a second- is it ok, to do the first 3-5 lease options in my name, then later on get an LLC? I'm just trying not to confuse myself early on with this and that, just hoping to keep it simple for now.

 

Thanx-

[MichaelC 160]

I would not necessarily wait, Joe. Usually, when I do an assignment it is upfront, rather than waiting several months into the deal. If the deal is already set up as a sandwich lease, I will more than likely keep it that way since it is already on "auto pilot", so to speak. I've already received some option money, I'm probably receiving some monthly cash flow, and I have my anticipated back end profit, too.

As for their "competence" to handle the deal, you need to determine that before they become your tenant/buyer, to avoid problem tenants.

The best way to talk to a prospective tenant/buyer about assigning them the whole deal is discussed in my manual in the Assignments section, Joe. That might answer your question as to how I approach this type of situation.

As for doing deals in your name, yes, you can. You are aware, of course, that doing so puts you personally at risk in the event something should go wrong. You are also aware of the advantages that doing business as an LLC offers you. The decision is yours, amigo.

[Joe Lee 0]

Well, I don't want to go my entire RE career without creating an LLC for myself. I just want to do a few deals (assignment flips) in my name first, then when I got some cash reserves, go all out and get the LLC, and start to hold onto property for the long haul.

 

When you said you just assign the lease to the buyer right away, do you still collect the option money as well as the assignment fee?

 

Thanx-

[MichaelC 160]

Joe, the LLC isn't only for long term holding of properties. If you do any kind of lease purchase deal, it is always better to do so under your LLC, rather than under Joe Lee the individual. In fact, depending upon how your individual State handles these matters, you'll find filing an LLC can be quick and possibly inexpensive. You may want to try this link for info in Ohio: Ohio Secretary of State

When assigning the deal immediately, you collect an assignment fee only. Now, the assignee is a clone of you. He/she has available all of the options that you had available had you elected to hold the Agreement.

[Joe Lee 0]

how much should an assignment fee be for say a $100,000 house? or what percentage of the purchase price?

[MichaelC 160]

Joe, there is no set number. The amount will vary and depends upon several factors. The biggest of which is how much does the prospective assignee have. Most everyone who is seriously out house hunting has taken some time to review their budget. As such, they probably have a very good idea what they were planning to put down when they found the house they want.

It's your job as an investor to try and get them to tell you what that amount is. I think if you can take a few minutes to review the sample telephone conversation in my manual you'll see how I advise to approach this topic. Look at Strategy Two/Assignments, and also at What to Say When the Tenant/Buyers Call.

Also, motivation levels play a big part in determining that number, Joe. How anxious are you to unload the deal and move on? Is the assignee hot to trot for the property? Etc.......

[Andrew Ikeda 0]

Hi Joe:

 

I certainly understand how you feel about getting started without an LLC but I must concur with Michael that it would be wise to get the LLC started before doing any deals...which is exactly what I am doing at this time.

Like you Joe, I could use some cash and fairly quickly but I believe in the addage "An ounce of prevention is better than a pound of cure".

I've also read somewhere that it will be a little? difficult to put properties that you have previously done back into an LLC after you have formed it (the LLC). I too am not a lawyer but the logic behind this (as I understand it) is that a T/B could use this against you if a problem should occur. The T/B could state that he/she was not aware that the property was in an LLC or come up with another excuse of some kind. Sorry Joe, I cannot explain this in details. I understand the concept however.

In any case...better to be safe than sorry, right?

 

Sincerely,

 

Andrew

[Joe Lee 0]

yea, your right. as long as it doesnt cost too much to form an LLC in my state then I'm all for it.

 

Thanx for the info people