A Few CA Questions

[Grf1974 0]

My first post, so let me say Hi! first. I've been reading quite a bit on here the past few days so I've learned somethings.

 

I've worked with another investor for a while on setting up retail flips so I have some cold calling and personal meeting experience. Almost got 2 deals done but his, the company I worked for, financers sucked at getting back about credit approvals, etc., quickly so things fell through. Either way, his techniques were limited and really wrong in that it was simply "acting" as realtors imo, but it was a fine line.

 

Anywho, after reading here about CA's and SLO's I'm excited about the prospect of being able to make CA's work for me. I like the minimum risk as financially right now I can't take much risk, and I like the "get in, get paid, get out". I will be buying the manual soon, but right now I have a possible opportunity with an in-law that I wanted to pose some questions here about.

 

The real estate market here seems to be on the slow side at the moment. Houses I worked with a year ago are some still up for sale but of course now with realtors. My brother in-law decided he and his wife were going to get into REI so they've done a few traditional deals, bought 2 houses sold one and rented the other. They also bought a fixxer upper and finished it about 3 months or so ago. It's an older home, bout 1200 sq. ft. 3br 1 bath, HW floors, new siding and windows. They really did a good job. They had it FSBO while they worked on it, and then once finished they listed with Century 21 for 3 months I think. Well they just took it back as a FSBO. So, being this is family, and I think they would love for me to be involved, knowing I was in rEI as well, so I feel they may be receptive to the CA possibility just to get the home gone and some income coming in. lol I know they have grown very tired of that house and not getting it sold. It's in a prime location imo, just it is an older home and on a semi main road.

 

Sorry for the book, but I thought background info would be handy.

 

My questions:

 

I know I really don't need a contract in dealing with them, (I know all would be good) but what about with the TB?

 

What happens if you get someone in there who "plans" on RTO, but after the 1 yr period they decide it's not what they wanna do?

 

I understand I should take the "selling" price and add my "fee" to it for the concideration/down payment from the T/B correct? This way the homeowner gets what they wanted, and I get my concideration up front. As for monthly payments, we let the homeowner decide what they want.

 

 

 

Another possibility for me is a old mill home that I dealt with when in REI before that got listed with a small realty but has not sold either. I know the owner is very flexible and extremely nice. I truly feel she would be receptive to RTO as well. I just have to wait for her contract with the realty to expire which I would think should be anytime now. I plan on contacting her once I have the info, contracts, etc. I need to do the job right.

 

This home I had under contract for $65k with the old company I was with, and her original and current asking price is $74k. Home was appraised a year ago for $74k and rental appraisal if I remember correctly was $600-$650/m. Knowing about CA's now, I could possibly get her her asking price AND collect say $2k concideration from the TB would you think? I had very good response on this home I just couldn't get people financed, and honeslty no one had cash to put down. It is located off a main road in a great town so I'm sure I could get people interested again with my signage on the main road.

 

 

About my area. I am in a small old mill town, population 40k. What was Cannon Mills is now gone. David Murdoch is now bringing/building an huge Biotechnology Research Park where the old mill is. It shuld be 90% complete around 2010. This is going to be a huge boom for this area and will hugely affect current property values. And this is a great opportunity imo for REI even with homes not selling so fast right now. The first building should be done late 2007 and then we should start having an influx of new comers looking for homes. We also have a new highway/interstate being brought through with lots of new construction popping up everywhere, so I am very excited.

 

Thanks for your help.

 

Gerald

[MichaelC 160]

Greetings Gerald, and welcome to The Naked Investor!

Anywho, after reading here about CA's and SLO's I'm excited about the prospect of being able to make CA's work for me. I like the minimum risk as financially right now I can't take much risk, and I like the "get in, get paid, get out".

Hehe. . .there's a joke in there somewhere, but far be it from me to bring your first post into the gutter.

I know I really don't need a contract in dealing with them, (I know all would be good) but what about with the TB?

If you are comfortable dealing with family "on a handshake" so to speak, then do so. But as far as the t/b, if I understand you correctly, you must absolutely have a written agreement in place. If you're doing a CA, you'll need a lease agreement, and an option to purchase agreement, with all terms specified.

What happens if you get someone in there who "plans" on RTO, but after the 1 yr period they decide it's not what they wanna do?

Happens all the time. We are, after all, talking about a lease with an option, not an obligation. If the option is not exercised the homeowners have a decision to make. Set up another rent-to-own, sell the house as a FSBO, hire a Realtor, straight rental, etc.

I understand I should take the "selling" price and add my "fee" to it for the concideration/down payment from the T/B correct? This way the homeowner gets what they wanted, and I get my concideration up front. As for monthly payments, we let the homeowner decide what they want.

As for the purchase price, you are generally correct. Although you need to be sure that the price is not over the market or there will be no takers. And as for the rental price, no, the homeowners don't decide what they get each month. The market does. Just because a homeowners monthly nut is $1,800 does not mean that's what the rent will be. If the market is $2K for the property, great. But if the market is $1,400 then pricing it at $1,800 will lead to a very vacant property.

The other property you describe sounds like the homeowner may benefit from your smarts in putting together a lease purchase for her. You've got nothing to lose by talking with her, and much to gain. Good luck, Gerald.

[Grf1974 0]

Thanks a lot MC.

 

Yeh I understand the "market price" issues for rent and for purchase. What I was getting at was that I don't "have" to negotiate the owner down on their asking price "if" it is in line with the market. Same with the rent price.

 

One thing I apparently didn't think about was that a CA deal is still a L/O deal in disquise Meaning they still get the "Option" to buy, and they can take or leave that option when the time comes. Do you get many sellers that ask about the option possibly not being taken from the T/B? What kind of reply might you give them? This is a possible negative I could see a owner have that agrees to a CA. I can also see a positive in that the homeowner still has their home, now valued higher most likely, has received income and made little to no maintenance expense to the home for a year or two, and probably more positives than that I can't think of.

 

 

I am so gonna get the manual lol, just gotta wait a week or 2 then maybe some questions will be erased.

[MichaelC 160]

One thing I apparently didn't think about was that a CA deal is still a L/O deal in disquise Meaning they still get the "Option" to buy, and they can take or leave that option when the time comes. Do you get many sellers that ask about the option possibly not being taken from the T/B? What kind of reply might you give them? This is a possible negative I could see a owner have that agrees to a CA. I can also see a positive in that the homeowner still has their home, now valued higher most likely, has received income and made little to no maintenance expense to the home for a year or two, and probably more positives than that I can't think of.

Read your own quote, Gerald. You answered own question. But, yeah, many homeowners will ask what happens at the end if the t/b doesn't buy. It's easy to put a positive spin on it, though. In addition to what you already said about receiving rental income during the past year, they also reaped the tax benefits of homeownership during the past year. Now they are faced with several choices, all in their favor. They can do another rent-to-own, (with your assistance, of course ), they can decide jus to sell; or maybe they have decided to become landlords and keep the property long term. Whatever they decide, remind them it's their decision and that they are in control of it all.