A Quick $10,000 Assignment

One of my favorite Lease Purchase strategies is the assignment. A lease purchase assignment is when we negotiate a lease purchase contract with an owner and sell that contract for cash or take back a promissory note for cash.

I recently got a call from a Realtor friend of mine who had a seller with a problem property. The property to your right was worth $730,000 and the seller owed $700,000. The market has been slow in San Diego, so this property was sitting on the market for a while. The seller who lived in Texas was making $4,000 monthly payments on this vacant property. The market rent for this property was around $2700. Even if the seller could rent it he would be taking a huge negative cash flow and trying to manage the property from out of state.

I approached the seller with the following terms. “Sir, What if I could do a 2 year rent to own on your property? We can pay you slighlty above market rent, you will get your rents on the first of the month, our tenant buyer will take care of all the day to day repairs on the property, and our tenant buy will buy the property at the end of 2 years”. You won’t have a real estate commission or closing costs to pay. The seller jumped at it and we agreed on the following.

Price: $730,000
Rent: $3,000
Term: 2 years
Option Fee/Assignment fee: $10,000
Rent Credit: 50%

We signed the contract and I put the property on the market. We usually like to sell our contacts for 2.5%-5%, however this house needed some work (We don’t do rehabs). As I walked through the property for the first time, I saw a mouse run across the counter and grab some food for the road. She also needed some lipstick and rouge (carpet and paint). I ran an ad and got a ton of phone calls. I explained to the tenant buyer that the house needed some work; we would take 10K down and he could do the rest of the fix up. We collected a deposit on the spot and I was in and out of the deal in 7 days with about six hours of work. Woo Hoo!
I took my $10,000 assignment fee and was on to the next deal with no rent collection, repairs, or liability. It was a true win-win-win deal.

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Clementine04
Posts: 1

Re: A Quick $10,000 Assignment
Reply #2 on : Tue July 13, 2010, 13:25:36

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Steve,

Great question. When we assign a contract, all the liability is transferred to the new buyer and the seller is aware of this. We also let the seller approve the tenant in this strategy.

Not only does the assignment absolve us from liability, but the seller approves the person we put in.

Could the above scenario happen? Sure! However, the risks sure beat the alternative of a vacant property sucking life out out the owner every month.

BTW, I nor any of my clients have ever had a tenant buyer "thrash" a property. However, I see plain old tenants do it all the time. Hope that helps!

Steve Lautenbach
Posts: 3

Questions?
Reply #1 on : Sun July 11, 2010, 11:04:49

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In this deal, what if the tenant-buyer moves in, trashes the home and then moves on at the end of the 2 years. My thought is you would have the liability then. And the original owner is looking for a payoff...what then?