Closed another one!

way to go. congratulations. how many do you have now ???

Thanks!

This is just my second one. Closed the first about three wks ago.

Never give up!

Karen

so excited for you!
That is amazing that you're doing a L/O!!! very cool!

Wishing you many more,
Val

Lease options are fun and win win situation.
Jimmy

So excited for you! I see you have your diamond! I guess diamonds are a girls best friend in this case! Woo hoo!

Karen, can you explain just a little how the L/O works? As I understand it, you get a check for $24,000 at closing and you will use part of that money ($5,000) to do the rehab. When do you pay the $4,000 L/O fee? Can you just go into a little detail for all of us newbies?
Thanks in advance.
-Teresa

I am SOOOO happy to hear about your deal with your area of expertise! This is wonderful Karen! Please share on DG about how this deal came about, it would be really inspiring for everyone to hear the details here!

Nice going with those L/O's. 175 is great but that 24000 is even better good job.

On to the next one good luck!

Two L/O's in a month, not a bad month! Thanks for sharing!

My question is how did you get the owners to pay you 24ka to take over their property?

Fantastic work, Karen! Really excited for you! When's the next one due?

so happy to hear about your success. you go girl !
keep moving forward, rob

The seller is getting married and her fiance already has a house of his own. She was extremely motivated to get rid of her house but she is about $30K under water.

She has very good credit and did not want to do a short sale or go into foreclosure and mess it up. When I talked with her, I told her that with it being so much under water there was not really anything we could do unless she could come up with money on the deficit. She went to her CU and qualified for a loan for $24K.

We have a L/O for 10 years due to the economy being the way that it is, but by that time the loan should be paid down enough that it will even out. We are looking for a Tenant/Buyer and will do a sandwich L/O for six years. They will pay us $4K as an non-refundable option fee which will count toward their down payment. If we are able to get the rent that we are asking we should cash flow $175/mo. They will be given $100.00/month as a non-refundable rent credit which will count toward closing costs or additional down pmt when they exercise their option to buy.

Depending on how long it takes them to exercise their option, we should also make an additional $10-20K on the end, because we will only be paying the balance of the loan at that time, so more equity should have accrued.

Not even $1.00 out of our pockets!

Thanks Dean for giving us this site! The networking here and the friendships that have been made have been priceless. Thanks to other DGers (one special mentor in particular) I was able to put this deal together. He helped give me the original idea for the plan and to make sure my wording was correct with this unusual type of deal and just the overall support. I owe him big time!

Karen

Are you responsible for making up the difference that the house is underwater out of the $24k? What will your option price be in relation to the FMV and loan balance? If no one exercises the option, what happens to her $24k?

At the end of the 10 yr option period our option price will be what is owed on the loan at that time. That is why we are doing 10 yr. At that time the loan should have evened out. The $24K is non refundable.

I was wondering what the TB's option price was in relation to the FMV and loan balance, and what happens if the TB exercises the option early? Do you restrict the time he can exercise the option?

I can see why you are smiling in the photo! lol

Just out of curiousity did you use your own L/O contract or one from the book?

It is amazing how much knowledge can be gained from a book and like minded people.

Congrats,

Congrats, I'm so happy for you!

RE never ceases to amaze. I need to study-up on L/O's...

Karen, is your journal the place to go to get more in's and out's on this. I've had the opportunities presented where this type of deal could be created, but I need to get a handle it.

Thanks,
Tina

Karen,

Great deal and thanks for sharing. Pays to be open minded!

Thanks,

Lori

Karen, great job. L/Os are the best way to buy and hold I think. Millions of tenant/buyers out there. It's just finding the seller that has a property the numbers actually work on.

Michael Mangham
Mentoring/Team Building Nationwide
MD Home Acquisitions LLC

To come up with the option price for my T/B I took the value of the house now and added 3%/yr until the end of the option time period. That will cover the loan balance also. I do not restrict the time that he can exercise the option but if he wants to exercise it early, his lender may require that he have more of a down pmt because he will have acquired less rent credits to apply as DP.

Karen

I have my own L/O contracts that were developed by a very prominent RE atty. They are very much CYA.

You are so right about how much we can learn! I am a junky in regard to that!

Karen

I love how L/Os work! That is why I decided to become an expert on them. All the study has finally paid off! ;D

I am ashamed to say, I have not posted on my journal for months! I guess I really need to go back to it...

But this is pretty much all of the ins and outs to the deal. If something comes up and you want to partner, give me a call. This was actually brought to me by one of my partners. The seller kept calling her and she didn't know how to make it work. She called me and I talked with the seller and came up with this plan. The seller was thrilled! So was my partner and so was I!

Karen

Karen, so what I am trying to get a handle on is...You get $24k from the seller and $4k from the TB and are going to spend $5k on repairs, leaving you with $23k net cash. Should the TB exercise the option after 1 year, will the principal reduction, 3% yearly increase, plus the monthly cash flow minus rent credit be enough to take care of the under water amount and make this deal profitable? That's why I was wondering if you were going to restrict the time the TB could exercise the option. I'm guessing the house is in the $100-120k range? Thanks for taking the time to answer my questions, L/O upside down houses is not a traditional deal.

GREAT Deal Karen.
It is fun isn't it? Love lease options!

L/O are amazing!You control the Investment and also can get paid big at the same time.

Yes. The option price is the option price. It is the 3% figured for the full time of the option contract. If he pays it out sooner, the house may not appraise for that price, so he will have to have more down pmt to get a loan. If he pays it out sooner, then we will not make money on the end because the loan will not be paid down enough, but the option price works so as to cover the balance on the loan now.

Even if he pays it off early and we don't make money on the end, it's still a great deal! If we end up making more on the end, it's an amazing deal!

"It is the 3% figured for the full time of the option contract."

So if I am understanding it correctly, your option price is the balance of the loan when the option is exercised, and the option price for the TB today is locked at 30% (10 yrs x 3%) more than FMV, regardless of when he exercises?

When you do a long term L/O, all you can do is estimate what the FMV may be at that time. No one has a crystal ball. You can always renegotiate if it needs to be when the option period is getting close to expiration.