30 Comments

1. 

   Ryan Thompson on at

   Dude! This is *VERY* valuable! Everyone who reads this post is going to be stoked! Thank you! 🙂

2. 

   Steve on at

   I love options…
   This ones great for quick flips…
   I’ll do you one better…
   Has anyone ever heard of a non-exclusive option to purchase?

3. 

   Glenn on at

   JP, as always, this is EXCELLENT content. Your contributions are valued and Erik did a great job explaining the Flex Option document, as well as its role and utility. Well done.

4. 

   Bill on at

   This is great!
   My question is then when you assign the option do you use an assignment of contract or is there an assignment of option? Thank you.

   Hi, Bill. You can use an assignment of option agreement, which is basically like a contract assignment, but with the words “option agreement” instead of “purchase agreement”. Same basic deal though.

   …jp

5. 

   ML on at

   JP
   Hey, I watched the video on the real estate flex option and I have a question. Once I find a buyer after having the flex option signed by the wholesaler do I need a new contract between the end buyer and the owner of record or between the wholesaler and end buyer or between myself and the end buyer. What is the appropriate way to do this?

   Whose title company do I use mine or the wholesaler’s to send the contract(s) to?

   Thanks in advance for your response.

   ML

   Hi, ML.

   Well you can assign your option agreement to the next guy and let him step into your shoes. Or you can exercise your option by putting a purchase contract in place, then assigning your contract to your the new buyer. Assuming in this case you’re the “middleman” between Optionor and end-buyer.

   Regarding title company, always try to be sure it’s going to a title company who understands what’s going on and how to handle the closings. That usually means you’ll direct all the parties to your title company, whom you will have already interviewed and can handle it all. But you don’t have to fall on the sword over this one if someone else in the transaction has a savvy title company…you’ll just want to interview them first to be sure they’re going to understand it and not mistakenly cry “SHENANIGANS!”

   …jp

6. 

   walt lafayette on at

   no i would really appreciate any info about non exclusive option to purchase thank you walt lafayette email [email protected]

7. 

   derron on at

   hijp great info can you do a video on how to determine comps,that’s one of my weak area,knowing how to read comps.what if the property is in a nice area,and it’s not a foreclosure,but a free and clear 3/2brick 1100sf needs about 10 or 15k in repairs,has some foreclosures in area that sold for 30k but area is worth 75k and up.how do i determine arv to make a offer to seller? p.s i live in michigan,so you know how this economy is

8. 

   Vannie on at

   Hi JP!

   THANK YOU for posting this very valuable piece of information. This was a very timely post, as I am taking the step in birddogging/property prospecting and was unclear of how the chain of transactions and the paperwork on the back end would be. I wanted to see if someone could clarify though some questions I had. If I took your first suggested method and just assigned the option agreement and let them step in my shoes, than the end buyer and the Optionor that I marketed this deal for would just work together on the deal to close on the deal? Would the birddog fee appear on the HUD somewhere if I were to go this route? It would appear to be that it would be just one set of closing costs as well since its a straight assignment of option? What if I was being offered a referral fee from the Optionor for finding a buyer, as well as the referral fee that the end buyer and I had agreed upon. Is this even legal to collect (2) sets of referral fees if I was able to be the principal in this deal because of this option contract? And then, how would it be reflected on the HUD if it is legal?

   As far as the 2nd method by exercising my option to purchase and execute a purchase and sale agreement with the end buyer, then assigning it – Im not clear as to how that is different than the first option, aside from the fact that there is an extra step? Would this method prevent the optionor’s info from being public info (thats what is seems like) and would this result in a double close situation or would I have to work out a simultaneous close with the title co/atty?

   Thanks for all your helpful information! And you’re welcome for the post.

   Hi, Vannie – thanks for commenting!

   In your first set of questions…yes, your assignment feel could appear on the HUD somewhere, in which case you’d be an itemized expense for the transaction, paid by the title company at closing. Or you could get paid in advance, when you assign the deal, from your new buyer. Of course, this would require your end-buyer to have a certain level of trust with you. And yes, there would only be one closing, thus one set of closing costs involved.

   Regarding your question about receiving two sets of “referral fees” from both sides of the transaction…honestly I’ve never done that or even considered it. And I’m not seeing how it would work in most cases. When you put an option on a property, you’re buying the right to have an exclusive option to purchase for a set amount of time at a set price…an exchange has already take place…why would the seller pay you for selling the property? If I were the seller, I’d tell you that your profit (if any) should come when you resell, if you even do. It’s of no concern to me (as the hypothetical seller) whether you profit from a resale.

   I think what you’re describing borders on — if not fully steps into — practicing real estate agency without a license. And you don’t want to do that. In fact, I’d stay away from calling your profit a “referral fee” – that’s a no-no in TN. You’re a principal in this transaction, and what you’re selling is your bonafide equitable interest in a property. And it’s typically considered “personal property” rather than “real property” in most states as far as I know…one reason why you’re not practicing RE w/out a license here.

   Regarding your last question…you’re right…there’s not that much difference really. Either one involves you assigning your interest and should result in a single closing.

   DISCLAIMER: I’m not an attorney, nor do I play one on TV. Take everything I say with a grain of salt, and for darn’s sake consult your attorney before doing any of this. This is not legal advise…just my own thoughts while sipping coffee at my laptop. 🙂

   Thanks again for commenting!

   …jp

9. 

   Demos Loizides on at

   J.P.,

   This is basically the identical agreement I’ve been using for more than a year. An investor sent it to me. Later that year, I saw Tim Mai’s video on Flex Option agreements and paused the video, when he showed the agreement. It was the same agreement that was e-mailed to me.

   I modified it to take out the “seller can cancel…” sentence, so I can actually assign this agreement. Without doing that, I would first have to notify the seller of my intention to exercise the option and then I would have to write up another contract. Sometimes it would take to long to do that and I might lose the buyer.

   Of course, if I have a seller that’s not sure if they to tie up their property with me, I can leave the cancelation sentence in their.

   I use the flex option agreement when wholesaling other wholesalers’ deals.

   Demos Loizides

10. 

    Scott Koopman on at

    thanks JP, great contract!

    Two questions

    1.) Do you know or do you know someone who would know if use of this contract and subsequent marketing to investors would be considered brokering without a license (or something similar) in Canada?

    2.) What do you do to agree to a closing period once you actually write up the purchase and sale? e.g. if the seller wants 15 days closing and your buyer wants a bit longer.

    Hi, Scott!

    1. I’m not familiar with Canada RE laws at all. My guess would be NO, it would NOT. But that’s based on my own familiarity with the U.S. and TN in specific. If I have an equitable interest in a property (and ownership interest of some sort – of which an option agreement qualifies) then I have the legal right to sell that interest to someone else. My guess is that Canada would be similar, but I’ll refer you to my Canadian friend and fellow blogger Julie Broad.
    2. Compromise. Just do your best to work it out. Like negotiating price, it’s just part of making the deal work. That’s why you’re a dealmaker! 🙂

    …jp

11. 

    Eric on at

    I have ID’d a property where, as a subject to, there would be good cash flow (taking into consideration mortgage payments, area rents, and everything else). However, going by comps the mortgage principal would put the property underwater.

    So, it might make sense for someone for a long-term hold. However, I don’t want to get tied up myself (I don’t want to take on the mortgage), I’m new at flipping (so have to generate a buyer’s list, and not confident I can find buyers in a short time), plus I’d like to set the seller’s mind at ease about tying it up. So a flex option might work.

    Have you ever written a flex option subject-to, or suggest what one might look like? (And, is this just too wacko?)
    .-= Eric´s last blog ..3 Secrets to Reading Housing data for the Real Estate Investor, Part 1: Understanding Seasonally-Adjusted Data =-.

    Hey, Eric!

    Admittedly I’m not a big fan of long term sub2 deals. For me, it’s only ever a short term solution. Just doesn’t suit me and feels too risky.

    Having said that, no, it’s not a wacko concept at all. You can wholesale/flip sub2 deals just like any other kind of deal, and a flexible option would work as far as I can see.

    My best,

    …jp

12. 

    Justin Lee on at

    Great video JP, thanks for sharing.

    I have a somewhat related question:

    How the heck did you get a 13 minute video on YouTube? I thought that they were capped at 10 minutes

    🙂

    Justin

    Thanks, Justin! YouTube has lifted their 10 minute limite recently. (Hooray!) Not sure what the new limit is, but I think we’re still limited to 100 MB or less for non HD video. I think HD has a different (larger) limit, but I have no idea what it is.

    …jp

13. 

    Dwight on at

    My VOTE IS IN!!

    anyway, if you had a home you were selling and needed to sell it and i came along and said, “Hey i will try and see if i can find a buyer, sign this (option)” then i find a buyer for say $5,000 more than what the owner wants, am i paid up front by the buyer or out of escrow? Cause if the seller can cancel then my investor just lost his money to me!

    Also, if there is no purchase agreement first, then i find a buyer with the option contract and he signs, does he just go to the seller and start a purchase and sale?

    now if i was marketing for ANOTHER wholesaler and i used this with him while he had a purchase and sale contract with the right to assign, then it makes more sense to me. Basically i would find a buyer, he signs my document, gets in touch with the person with the right to assign, assigns to him and they all go to closing and we are paid out of closing right?

    I just don’t want my buyer to feel like something might not go through and he just dumped me a check for 5k. Small walk through on this maybe?

    Thanks!

    Dwight

    Hey, Dwight! Great questions…and I think all your questions are pretty much answered in my responses to other people’s comments here. These comments weren’t published yet when you originally posted your question – I’ve been playing a bit of catch up on blog comments today. 🙂

    Let me know if anything’s still fuzzy and I’ll do my best,

    …jp

14. 

    Dwight on at

    I think i get it. The option is a piece of paper basically that’s not notarized so when i find a buyer he can literally just start a new purchase and sale agreement with the seller and i can get my fee by assigning the option??

    JP: You got it! 🙂

    i heard of another way before and its that you start a contract with the owner and put your earnest money out at whatever you choose like due on 45 days or before, then find an end buyer even if he is retail and start another contract. if he is cash you can do a back to back closing, if its retail you keep both those contracts around but do not give them to title. I guess for security just in case or so you can act as a principle i guess. But you start a 3rd contract between the homeowner and the end buyer and put an INVOICE as your payment. By law all invoices MUST be paid out first prior to any closings. I guess some assignments are gone around by investors and you lose all your profit so this is the best way. heard of this?

    JP: I wouldn’t recommend doing this – it’ll get you in hot water for basically practicing real estate without a license. When you create that 3rd contract between your seller and your end buyer…you’re not a principal in that transaction, so any money you collect from that transaction would probably be considered a disguised commission if ever challenged.

    The seller or buyer could pay you to release your contract so they can step in, but I wouldn’t think that would be something you’d put on the HUD of the end transaction.

    Just collect any assignment fees as a line item on the HUD…same deal as your “invoice” method, but you’re still an equitable interest holder. Just my $0.02. As always, talk to your own lawyer or RE pro before following any of my crazy advice. 😉

    …jp

15. 

    jeff G on at

    Hey Jp, If I”m use n the Flex option To Market a sellers property to my Investor buyers, When I find a buyer, What paper work do I need to put together, so that I can cenect every one together & I get paid at closeing If It is a Assignment of Option can you email me a copy of one – And can you tell me how to put this deal together.

16. 

    Carey_PA on at

    JP,

    I like it! I was listening to Flip or Treat on the way home last nite and heard you talking about this. Now, I’ve used a straight up option before to try to purchase a property (obviously, I was shopping for an end buyer) but I never even thought of using an option the way you propose in the video. Brilliant. I’m gonna do it!

    Thanks!

    Carey

    P.S. The Pending Hi-Jack was genius too!
    .-= Carey_PA´s last blog ..Met with attorney =-.

17. 

    Tony on at

    Will a trust work to take care of FHA seasoning issues on a back-to-back? If so, how do you implement this technique?
    Thanks,
    Tony

18. 

    TexasREvestor on at

    THanks so much! I’ve been looking everywhere for one of these to use in my wholesale business. My mentor calls this “recycling” and does not like the concept as things can get muddy with more moving parts, but I think if you can use systems like Tim and do enough volume it is a viable strategy.

19. 

    Hurol on at

    I had to at least say thank you for providing this resource.

    Thanks JP,
    Hurol

20. 

    Jay von Mohr on at

    Awesome vid JP.

    Jay von Mohr
    818-359-1617

21. 

    Thereboundcompany on at

    i have been looking for someone to explain how this works to me!  i am fairly new to wholesaling and just came across a huge inventory and extreme discount deals and wasn’t sure how to do this so thank you so much for explaining so well!!!  i just have one question – if I am the Optionor and marketing another wholesalers properties, do i become the one that is on the purchase and sales contract with my end buyer i found? or how do i assure i get paid?  and what part does the other wholesaler play at closing?  thx again!!!

22. 

    jp moses on at

    Hi, thanks for commenting! No, you would assign your option via an assignment of option agreement. This would be in return for a fee (your profit) to be paid at closing. It would all be on the HUD-1 settlement statement. The new buyer steps into your shoes and exercises the option agreement. Make sense?

    …jp

23. 

    Thereboundcompany on at

    Thanks JP!  I did not see an assignment of option agreement in your forms (unless I missed this)…Do you know where a good place is to get something like this?  Also, do I give a copy of this paperwork to the title company or how can I make sure that I receive monies at closing?

24. 

    jp moses on at

    You can just tweak the wording of my assignment of contract…just make it say option instead. It’s not that big a deal at all really. Or your local Realtor board may have one also. Ask a Realtor you know. In terms of ensuring you get paid, yes, you’ll send a copy of the assignment to your title company and make sure they add it to the docs for the deal and know you’re supposed to get paid at closing and be on the HUD-1. I always make sure it’s closing at a title company I know, like and trust.

    …jp

25. 

    Thereboundcompany on at

    AWESOME!!  Thank you SO SO much!  I think I got it 🙂  I appreciate your help a ton! – And i love what you are doing on this site, including the Faith Corner! Have a great week!

26. 

    Brunbill on at

    Hi Tim,
                After I assign my option to the end buyer, does he give that assignment form to his title company so they know they have to pay me when it close? Is that the way it works unless I get paid my assignment fee in cash?

27. 

    Tj on at

    Thanks for the info!  I want to make sure that I’m clear – I understand that this contract can be assigned to an end buyer – and if used to market a wholesale property, the wholesaler may also have a contract in place – so with the seller + wholesaler + ME + End Buyer (that I brought to the table) – How is it possible to gain enough control to assure that MY expense is added to the HUD?  I can see where it would be VERY COOL to use in a Seller + ME + End Buyer scenario – but when adding  a 4th party, I’d be afraid of losing my cut.  I would think that the “wholesaler” in a 4 party scenario would call the shots?

28. 

    Jerry Barker on at

    How does this differ from a Net Listing, which is illegal by the way?

29. 

    jp moses on at

    Hi, Jerry. Thanks for commenting.

    For anyone who doesn’t know, a “net listing” is listing in which the broker’s commission is the excess of the sale price over an agreed-upon (net) price to the seller.  I.E. Andy Agent agrees to sell Sally Seller’s house on a net listing. They set the net price at $200K. Andy finds a buyer willing to pay $210,000, so his commission is $10,000. Conversely if he finds a buyer offering only $200K, then he earns zero commission.

    This is illegal in some states because it can create a conflict of interest for the broker.

    The big difference I see between a net listing and using a flex option as described in this post is that we’re investors, buying & selling houses, not agents listing them. There’s no “commission” here. We’re not representing the sellers as their agent (which is why a net listing creates a conflict of interest). We’re acting as principles in the transaction, which means we’re not expected to fall in line with laws governing agency.

    Make sense, Jerry?

    Thanks for commenting!

30. 

    Go Cash on at

    This is great. But what about the option consideration? Shouldn’t there be $10 at least as an Option Consideration? Or does there not need to be? I tried this earlier this year (REProfitEngineering on youtube) and was able to record my receipt of option consideration. (It was odd but our “online-signatures” weren’t good enough but the receipt was signed in person, and had “live” signatures so the recorder’s office used that to record and allowed me to submit the option as supporting documentation.)

    Thoughts?

    -Cory ( currently an IPOD student also.)