SEEKING SOME ADVICE ON A LEASE OPTION DEAL !'M WORKING ON

I told him I'm only going to start making payment to him when the property is vacant but he doesn't seem to understand lol....

I fee comfortable marketing this property when I haven't yet gotten it under contract. I feel like it I do via bandit signs and CL, I could get someone easily for sure.

TC, to be honest with you, I would be unwilling to do this transaction. I've done quite a number of sandwich lease options, and the usual amount that I give to a seller is 1 to 2% of the purchase price. This seller is asking for more than 7%. That amount, by the way, is typical of what I would expect from a tenant/buyer.
I believe that you need to explain to the seller that the reason they should want to work with you is that you will take on the full responsibility for this property, and that you cannot give them an option consideration that is too high because it would hamper your ability to properly deal with all aspects of managing and maintaining the property.
If they want to take on that risk themselves, then let them go ahead and deal with any issues or problems created by tenant/buyers. We offer a very well structured program with answers and solutions to pretty much any challenge that will come along, but we cannot give the seller a huge chunk of cash and still be able to properly manage our program.
I also remind the seller that they should look at this at the beginning as being similar to renting the property out, where they will receive a first month's payment and a deposit that is equal to, or a little more than a month's payment. Hopefully that will help them understand what we are setting up. By the way, my best source of lease option properties is rental properties that are currently vacant, rather than owners who are attempting to sell their property.

If he's asking $7500 for an option fee, he's not very desperate. If he wants $7500 for option money, there is no room for you to make any money and thus, no reason to take on the risk and get involved.

Who came out with the $7500 option fee? If he's really desperate he will be willing to take anything or at least half of what you get from the tenant buyer. You might want to re negotiate with him on the option fee because like Dallin said you would be expecting 5%-10% from the tenant buyer and give the seller his 1%-3% on the option fee. And If the seller knows what your intentions are with the property why wouldn't you start to market the property even if you don't have it under contract. If the property is vacant you should ask the seller for the keys so you can show the property to potential buyers, If not then get it under contract with your terms and start marketing.

You stated a great point...I had to saved/noted your advice. I will definitely re-negotiate with the seller on the option fee.

Actually I contacted the seller yesterday and I arranged an appointment to meet with him tomorrow Friday so I can take pictures of the property. SO I plan letting him know face to face exactly what you advised me in regards to the option fee.

It's good to know your source of lease option are rental properties. I do the same too as well which I learnt from you in terms of contacting rental ads.

Usually when I contact FSBO and at the end of my interview with them, I ask them if they are open to seller financing or asked them what would they do if their property don't sell. If would consider rent, then I would ask if they are open to rent to own..

Thank you so much coach and I will keep you posted:)

Thanks for sharing your thoughts on this. I agree with you in reference your statement. I plan on renegotiating with the seller on the option fee. The reason I stated the seller was desperate was because when I asked him the reason for him selling he told me he needs the money to take care of his sick mum so I guess he was desperate for money.

I need to work on my negotiating skills with sellers. I often see myself getting too excited when it comes to making offers and I'm gradually improving on it.

Thank you and all the best in your REI

TC, I personally believe that becoming a powerful negotiator is a lifelong pursuit. We all negotiate every day, at home, at work, etc.

For all, I admire excitement in negotiating and making offers, it is important to build some excitement with other people, or they will not want to do business with us.

The critical thing is not be too dependent on a specific outcome. In negotiating circles, you have to know your limits and your BATNA (Best Alternative to a Negotiated Agreement). As investors, the BATNA is actually pretty easy--move on to the next property. I like to add to that, that we will check back in 10 to 14 days, and if the property is still on the market, RESUBMIT. If the seller had sticker shock from your first offer, it's guaranteed they will not have sticker shock when you come back and present it again in 2 weeks.

Remember that the seller has a much bigger problem than we do, and a lot fewer options. While in some market conditions they may get multiple offers, approximately 40% of all offers that are accepted and go under contract never make it to the closing table.

As real estate investors, we are all very powerful with what we can accomplish. Do not give up your power by becoming emotionally attached to any single deal. There are too many other deals out there. Remember my maxim: "Deals are like busses, if you miss one, wait 15 minutes and the next one will come around the corner."

Hi Coach thanks for you knowledge and honesty on this deal,much success, Jim

Thanks Jim, always good to communicate with you.

For all, there is an interesting gap in understanding. Many people seem to think that if a property is listed with an agent, that it is illegal, or something, for us to communicate with the seller. This is not true.

The only thing that could possibly become an issue is if you try to make an offer directly to a seller on a listed property. They have contracted with an agent to have all offers go through the agent.

But you are not breaking any rules to talk with them about their property. It's getting warmer across the country, and being outside will be more common. If you're driving around and see a property, you may find an owner outside working, or people's cars parked out front. I've stopped many times to talk to a seller, or knock on their door.

I always let them know in the conversation that I will contact their agent to make an offer, so there is no question about that.

Another thing that I have found necessary in a few situations is that I will put a clause in the contract that says: "Buyer reserves the right to be present at presentation of offer." I've done this when I had to make an offer where I had difficulty getting any acceptable comps. That way, at least I get an opportunity to be on the phone or in the same room with the agents and the seller. I was told by my first mentor that "Deals happen when people get together and talk." I believe that the buyer-agent-agent-seller-agent-agent-buyer string of communication to make an offer is inefficient, leads to miscommunication, and is, frankly, Stupid!" I'm not afraid to legally circumvent stupidity when I find that it serves my purposes.

I'll let you all decide how you want to use this information, I just prefer that you be informed that direct contact with sellers of listed agents is neither illegal, nor a bad idea in many situations.

I appreciate your time sharing with us on how to be a good negotiator with sellers.

I definitely noted down your technique clause which you use in your contracts "Buyer reserves the right to be present at presentation of offer."

I have a question for you coach in regards to the comps which you present to the seller, Do you present these sellers with the high or low comps?

For instance, when I show them the comps, I will have to let them know we buy and sell lots of houses and in order to do this we have to turn in our cash quickly. In other words we don't pay for retail prices.

let me know your thoughts on this

Thanks

TC, thanks for your comments.

In negotiating directly with sellers, we have a delicate balance to maintain. We do not want to give them the feeling that we think their listing price is wrong--that will create a communication barrier. But we also have to substantiate our own offer, at least to some degree. Presenting them with sales comps does not really reflect what we see in the property--the need for work to be done. Instead, in making an offer, we need to point out the work that needs to be done on the property, and the fact that this work is going to be costly.

Most people selling their own personal residence have an unrealistic estimate of its value. It doesn't really help to burst their balloon, we need to let them down gently. Basically we need to let them know that we respect their asking price, but as investors we have to look at things a little differently with regard to the condition of the property, etc. So based on our review and calculations, here is the offer that we are able to present.

You couldn't have said it any much better than this.

I will definitely note this down on my note pad and use this for now upwards. I'm glad I have seen a lot of improvements in myself in terms of the amount of knowledge which I have gained on DG.com since day 1.

Thanks Coach and all the best in your REI

TC, thank you for your comments, you always raise provocative questions that I hope offer some valuable insights for those who frequent this website.
There are two or three things that I feel I have learned that are the foundation upon which everything else is built.

One of these valuable principles is called WIIFT, which stands for "What's In It For Them." As we deal with people, we discover that they have problems, and that they have needs, wants, and desires. In assessing any property, we need to realize that it is backed up by a human problem that has caused the need for them to sell the property.

My greatest challenge as a real estate investor is working with "in-betweeners" that do not allow me to communicate directly with sellers to fully understand why they are selling their properties.

Real Estate agents are very nice people, this is not an indictment of them, but the system that places two people in between the people who most need to communicate is flawed, and results in a lot less transactions being concluded effectively. I prefer to work with For Sale By Owner properties for this one reason alone. But I choose to work with agents when the supply of properties available through them warrants it. Plus, I have two VERY good agents who are investors, who understand the needs and processes of investor transactions, and are often willing to probe for information about properties and sellers, or even be my advocates when I need to set up communication with the seller, despite the fact that listing agents are often resistant to this.
All this being said, refer to the WIIFT principle in all your dealings. The more that you can help people to get what they need, want, and desire, the more successful transactions you will complete.
I have been particularly successful, compared with a lot of other investors, with seller finance transactions, because I have come to realize that the needs that many sellers have do not necessarily need to be solved by immediate cash transactions. To spread out payments over time can work as long as it does not impede the seller from doing what they need to do--buy another house, move out of the area, get out from under a financial burden, etc. The simple reason for my personal success in this area is that my niche for these deals is unlisted properties where I am dealing with sellers, and particularly in calling on rental properties, either those that are for sale, or those that are for rent. For any property that is for sale, when I ask the seller why they are selling, it is the most important question that we will discuss, and I will continue to elaborate on the reasons behind the reason that they are selling until I determine if they have an immediate cash need, or just the perception of one. If they simply think that they need to be cashed out, but there is another potential solution, then I can construct an offer and show them how they can still accomplish their plans.
I wish each of you the greatest success, and truly believe that this principle needs to become a foundation for every successful investor. Once you begin to live by this principle, it is life changing in every aspect of our lives.

You couldn't have said it any much better.

Please I need your advice on this property I'm working on. A seller contacted me via my ghost ad for lease option seller which I had posted on CL. He motivated and he wants to move out of the area. I haven't done my numbers yet on the house.

The seller told me the house is currently listed with an agent. My question is: when I do my numbers and there is not enough equity in the house for me to wholesale it instead of Lease option.

Am I suppose to honor the contract which he has with the agent (5 months remaining) by waiting or just put a lease option offer and let the agent know her commission will still be paid fully?

I would appreciate a feedback

Thanks

TC, a lease option offer still constitutes and offer to purchase the property, although the actual purchase would take place in the future. This is the reason that most real estate agents are averse to lease options, they want to receive their commission now. If the property has been on the market for a while, the agent may consider something in the future to be better than nothing. But all offers to purchase on listed properties, even those for the future are still supposed to be made through the agent.
A couple of unconventional ideas that may help to get these offers to work for everyone would be:
1) Make the offer through the agent, with the inclusion of the clause: "Buyer reserves the right to be present for presentation of offer." This clause should give you an opportunity to be able to converse with both agent and seller to present your plan verbally, either over the phone or face to face. I learned that "deals happen when people talk." And I have found that to be true.
2) You can offer a small percentage of the option consideration as a voluntary show of good faith to the agent to give them an incentive to work with you on lease option offers. This way they receive a little something at the beginning, with the promise of commissions in the future.
While I alluded to this above, it is the complication of the agent and their perceptions that has caused me to seek lease option opportunities elsewhere. You have to be working with very "evolved" agents in order for them to be comfortable doing transactions where they get paid in the future. Their whole industry is based around instant gratification for the agent when the property is sold.