Lease Purchase Action in a Recession

Hi everybody, it’s Todd again. If you are wondering why there is a horse in this picture, i’ll eventually get to that. Let’s start with all the talk about the economy and the current recession. The question is not whether or not we are in a recession. The question is how can I make more money and take advantage of the recession or lack thereof? I won’t give you an opinion on the recession, but I will tell you that we are currently in a Lease Purchase Frenzy. Credit is scarce, traditional buyers are scarce, and all the seminar attendees have gone home scared to invest. This is the market that everybody was waiting for. This is it! So how do we employ Lease Purchasing in today’s market?

There are several ways to do lease options. You have to take the current market cycle and adapt a strategy that works in the current environment and keeps your risk to a minimum. Sandwich lease purchases are what most people think of when you mention the word Lease Purchase

One of the most effective strategies in a downward market is the selling (the assignment) of a lease purchase contract. I refer to this as the Teamwork Assignment. We call it this because we work with the seller (as a principal) to fill the property on a Lease Purchase.

Let’s pretend that we get a call from a motivated seller who has a $500,000 property in a good neighborhood. It was once worth $600,000 and our sellers mortgage payments are $3000 a month. Market rent for the property is $2200. Let’s call our motivated seller “Brett”. Brett, who can’t stand the idea of a negative cash flow, is wondering how he got stuck with this dog and is tired of dealing with his vacant property. He had a negative when his renter was in the property and now it is vacant. I approach Brett and say the following. “Brett what if i could put a tenant buyer in your property who will pay you above market, take care of all the day to day repairs on the property, and who will buy the property in a year or two? You won’t have to pay a real estate commission or closing costs”. Brett’s ears go up and he mentions something about being approached by 5 other investors this week who offered to take over payments while leaving the loan in his name. Brett laughs at the other investors and is now engaged in our conversation. This actually sounds like a fair deal to Brett. Wow! What a concept. We agree on the following:
A monthly rent of $2495 a month
A price of $500,000 in two years
50% rent credit for the first year (towards the purchase price)

I tell Brett that I will be selling this contract to a tenant buyer for 2.5% of the purchase price of the home, which I add to the price.

Brett realizes that there is a chance that the tenant buyer won’t buy, but this is a great way to help reduce negative cash flow. If the tenant buyers do buy, that’s a bonus!

Our imaginary investor, lets call him….“Todd”, advertises his property on his *Lease Purchase” website and finds a buyer who buys the contract for $12,500. This means the new buyer takes Todd’s place in every capacity for the $12,500 fee. The buyer mentions something about declining home values. I mention I am not a fortune teller and I can’t/won’t predict housing prices. The wife is screaming at the husband to get the house as my second set of prospective tenant buyers walk up the pathway to look at the house. We take payment by credit card, fill out the assignment form and I am done with the deal.

If prices go down, Todd is not liable-he is out of the deal. However, if the tenant buyer comes back to me in 2 years time and is upset the house won’t appraise, he will apply his assignment money towards another property that the buyer will by outright. Todd calls a few builders who agree that if Todd sends a buyer they will rebate the seller 2.5% at closing (the same as the orignal buyers orginal option money), and will rebate my company another 2% for consulting services. If Todd is a real estate agent, we call this a commission, if he is not, he becomes a principal again and collects an assignment fee. If buyer cannot qualify for a loan, it does not matter what prices are anyway. Todd makes money, the buyer is happy, and so is the seller. You could also renegotiate with Brett if you wanted to.

Seller also has a friend in a similar situation. He refers Todd and repeats the cycle.

There are a ton of ways to do deals as long as you sell value and hit people between the eyes with honesty. Right now I have a five year rent to own contract on a San Diego condo that is about 40K above market price. The seller knows I will be selling the contract. When buyers call I say the following. I have great condo in a good school district. Here is the issue… the condo is a little overpriced right now. However, you and your family can move into this condo today. You will have five years to buy the property. Hopefully, the market will turn around and with a little time, this could be an excellent deal. If you can put down 6K today, I can get you into your own place. Is it a risk for the buyer? Sure it is, but I am not asking for the guys first born child either. I let him know of the risk and he makes the decision. Would you like to take care of that Visa or mastercard? Or if the guy is a web developer and you need 6K worth of website work, just barter for the thing. The other day a guy tried to give me a horse for a down payment. Hey, whatever it takes!!!! Make it happen baby…make it happen. I didn’t take the deal by the way. (Mr. Ed freaked me out as a child :-)

If you are interested in creating an excellent income for yourself through Lease Purchasing, give me a call and ask me about our mentoring program and/or our home study packages. Good Luck and Good Lease Purchasing. (619) 464-2232.