I am a new loan officer in Austin, TX and am interested in investing in real estate for extra income. I am especially interested in the Lease/Purchase approach since it appears to have the least amount of risk and up front money required to start. However, I am concerned about the seller's perspective. I don't want to take advantage of anyone (of course), so could someone tell me how you orchestrated a deal where the seller was at ease and received a "good deal". Thanks for the tips!---Angela

Hi,

I have purchased several pieces of property as Lease-Purchase deals. Typically what I do is look for deals in which the property has been on the market for quite a while, preferably over a year. If I am satisfied with the quality of the property and the selling price, I will approach the seller with an offer to purchase, contingent upon my leasing the property for 6 to 12 months.

What we do is prepare a standard offer to purchase; then add an addendum that explains the details of the lease option. I usually put between $2500-$5000 down right up front and structure the lease option for 6 months. Then at the 6 month mark I leave myself the option of putting down another $2500 and extending the lease option for a final 6 months (max of 12 months total). The initial money and the extension money are to apply in full to the down payment and are held in trust by the seller's real estate agent's office. Should I default in the deal and walk away the seller gets to keep the money.

It becomes a Win-Win situation. If I do NOT buy the property, the seller has another year's worth of equity in the property and has 5-10K for his troubles. If I DO buy the property after 12 months I can now have the transaction treated as a refinance off of appraised value rather than a purchase - meaning no money out of my pocket now to finish the transaction.

Hope this helps.



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W. Jeff Weatherspoon
Monarch Financial Services, Inc.
Commercial Lending Division
843-602-3322
843-497-9381 fax
monarchfinancial@sc.rr.com

Jeff, Thanks for the info. I have also heard of basically being the "middleman" in a lease purchase by offering the seller a "fair price" (but around 15% less than asking), the seller continues to make the mortgage payments for 1-3 months while the middleman finds a tennant, the "middleman" agrees to buy the house in 2-3 years and in the meantime make the mortgage payments to the seller's lender and be responsible for the upkeep of the home. The middleman then gets someone to lease/purchase the house from them for 100-200 per month more than the mortgage payment. Of course, the middleman also receives from the tennant a large option fee--around 5% of "middleman's" asking price. (non-refundable, but applies to closing costs and/or down payment if they exercise the option). Sometimes the "middleman" offers a certain percentage or dollar amount of rent credit per month to the tennant. When the tennant exercises the option to buy, the middleman buyes the seller out.

This all sounds great for the middleman--and really, the tennant as well, but I am concerned that it takes advantage of the seller. Is there a way to work this type of deal without the seller getting a raw deal? Perhaps my perspective is off... Let me know your thoughts. Thanks!

That's an interesting perspective, and not one I have tried before. What I find happens in these deals is that it has to be palatable for the seller to retain his interest. Also, an uneducated seller is going to rely a lot on his real estate agent's opinion; I find it is most effective to find a hungry real estate agent that is able to think six months down the road. Not all of them are able to do so; you need to establish that up front. If you are not dealing with a dual agency type of situation it's helpful to find a friendly agent to act as your mouthpiece to the seller's agent. Your agent can establish your bonifides by telling the seller's agent how successful this method of home purchases has been for you and for the sellers previously. A good seller's agent would rather have a sale 6 months later than a listing that has already been out over a year, with no promise of a seller in the future.

jw

I am a translation contractor working in BC, Canada. I have been interested in getting into real estate investment, specially through lease-purchase contracts and more specifically through the scenario presented in austinloan's last posting.
I share austinloan's concern for the possibility of the seller getting a raw deal. I have heard of setting the price at 5-7% below asking as opposed to the 15%, but I don't know if this can be made to work. Have you found any more info regarding how to set it up so that all three parties are happy?

Hey Everybody.. Nice to see everybody back to moving... Now honestly I would not be too worried about the "raw deal"... If you as the buyer make an agreement with a Seller and he/she/they accept the creative offer(s)... Then you turn around and Rent/Lease/Lease Option the property for more money AND all of this was done in good faith and legally... Then it wasn't a raw deal for anyone... The Seller got what he/she wanted... You the buyer and then the seller got what you wanted/needed, and the Buyer/Leasee got what they wanted, that sounds like a pretty clean deal...

Yes I know that that sounds rather simplistic of me to state it that way but as long as you are doing good deals and not "sticking" it to anyone, concern yourself with your business, making a business deal work correctly...

Let me give you an example... I know of a piece of property that had an option written on it... The Buyer offered a price for the option and the Seller accepted it... The Buyer turned around, marketed the property to a different clientele and sold the option to another buyer... That Buyer then closed on the property... After closing on the property, the New owner then marketed it and optioned it to another person... That person in turn had the right to sell that option and did to another buyer who already had a project in mind, his project got sidelined so he then sold his option to another developer and that developer then purchased the option, closed on it and built condos on it..

Yes I know, a long story, but the moral of the story is everyone who was involved was happy as he/she/they got what they wanted out of the piece of property...

Good Luck and Good Deals to you all... Now if you are fortunate enough to find a Seller to sell to you at that much of a price break, bully for you... I have seen offers as low as 50% of the asking price of course they normally are not accepted but hey, the buyer tried...

Duane