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Steal This Model: 8 Steps to Wholesaling Lease Options

By | Category: Featured, Real Estate Investing Articles

Recently I had the opportunity to connect with St. Louis real estate investor Joe McCall, who’s been an acquaintance of mine for a few years now, and a long-time understudy of my buddies Steve Cook and Shaun McCloskey.  But to be honest, I’ve never really known what Joe’s particular REI niche was until now.

So check this out…

It seems Joe has developed his own special little niche: wholesaling lease options.

And as a result, Joe found himself in a position so many new investors dream of:  His part-time income from wholesaling lease options surpassed his full-time J.O.B. income very quickly.  His $75,000 / year job was actually starting to cost him money. So as you might imagine, he kissed his “real” full-time J.O.B. goodbye within a matter of months and hasn’t looked back since.  All thanks for his quiet little discovery of wholesaling lease options.

So when I reconnected with Joe, I was – as you might imagine – intrigued.  And I thought you might be too.  So here’s a guest post by Joe, describing briefly how it came about, and how it works for him.  Enjoy…

What is “Wholesaling Lease Options”??

By Joe McCall

Let me first tell you a little bit about my background.  A few years ago, I was buying a lot of homes with traditional bank financing.  When the banks started telling me that I couldn’t buy anymore homes, I started buying homes “subject-to” the existing mortgage.  Pretty soon, I owned about 12 homes within 12 months.  (And I was selling all these homes on Lease Options.)

Yes, I owned 12 homes.  I thought I was a successful real estate investor!  But…

I was equity rich and cash poor…can you relate??

I had lots of equity?  OK, actually I thought I had lots of equity… but then the market crashed!  Can anyone relate?

But when you are only making $100 – $200 per month cash flow on each house, that money quickly disappears in vacancies and repairs.  All of the sudden, I found myself with a serious cash flow problem.  I realized I needed to fix my cash flow problem, and fix it quick.  So I started wholesaling houses.

So next I found myself spending thousands and thousands of dollars on marketing – direct mail, Google adwords, websites, signs, etc.  And I was getting a lot of leads, and actually starting to make some good money!

But before too long I started getting very frustrated because I was spending so much money on marketing and throwing away so many leads from sellers who were not motivated! Maybe they didn’t have enough equity.  Or maybe they did have enough equity, but they weren’t willing to share any of it with me!  A lot of my leads weren’t behind on payments. As a textbook wholesaler there was nothing I could do to help them, and I was getting really frustrated!

So there I was. I loved buying properties and I was really good at selling them on lease options.  But that approach left me with a serious cash flow problem.  And while I loved the cash flow that traditional wholesaling was giving me, I was frustrated with the amount of time and money I was putting in marketing for wholesale deals with relatively little to show for it.

That’s when it hit me: “Why not wholesale lease options”?!

Let’s look at some facts…

1) There are TONS of sellers out there who can’t sell their home.  They either have very little equity or they aren’t willing to discount their home to 70% of ARV to compete with the banks.

2) There are TONS of buyers out there who can’t buy a house.

So I thought to myself, why not stop throwing away all those leads and do something with them?  Why can’t I put “Lease Options” and “Wholesaling” together and make the same money with them as I was making with regular wholesaling?!

The Quick and Dirty of Wholesaling Lease Options…

Here are the basic steps:

1) Find a motivated seller who wants to sell their house on a Lease Option…

2) Get the property under an “Option To Lease Option” contract…

3) Find a qualified tenant-buyer who has a good down payment and a good chance to get a mortgage in 6-12 months…

4) Sign the Lease Option paperwork with the Tenant-Buyer…

5) Assign the Lease Option docs back to the seller…

6) Keep the Option Consideration / Deposit and give the Seller the first month’s rent…

7) Put the Tenant-Buyer in a credit repair program with your mortgage broker…

8 ) Deposit your money & move on to the deal!

Real simple… really!  That’s why I love this business so much.  Almost anyone can easily do 1-2 of these deals a month.

Imagine what you could do with an extra $3,000 – $10,000 in “Hip Pocket National Bank” every month!  And if I can do it – anyone can!!!

- Joe McCall
St. Louis, MO

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  • Linda Garcia

    There is a clause about the deposit where it is non refundable right? Or what is the clause about the deposit?

  • briangibbons

    Hey this is great!

    Like a Lease Option Flip! Or a Land Contract CFD Flip! Or a Wrap – AITD Flip!

    AWEEEESUM!

  • KellyPay

    Sounds like a great idea!

    I have a question, though: isn't the deposit/option consideration supposed to go toward the buyer's downpayment? How does that end up affecting the owner when their buyer is ready to buy?

  • Vivian

    Very interesting scenario…I run KY Lease Options in Northern Kentucky and my target market is vacant properties and motivated sellers.. I lease option from the owner and then to the tenant buyer. I have been looking for other ways run this side of the business. Thanks!

  • gregstoner

    It is situation where the seller could just do the Lease Option themselves, but they don't have the knowledge to do so. Knowledge is power.

  • wrc

    Thanks for sharing this concept. I think you should do a teleseminar w/ JP, make contracts, marketing pieces, etc. available and charge a reasonable fee.

  • John

    Can you provide a “Option to Lease Option” Contract?

  • jayvonmohr

    I'm doing this in L.A./Palmdale with a Partner (using the Joe Crump method) The main issue I'm finding here is sellers are upside down 150k to 250k or more. The length of the lease option needs to be pretty long to make up for the difference in value (for them to break even) & I won't just put a buyer in there if it's not a good deal for them (win/win)

    As to Linda's question/post, It's called a non-refundable option consideration fee (not a deposit). It's what allows the buyer the option to purchase (or not) at the end of the lease term (kind of like a car lease)

    Jay von Mohr

  • jayvonmohr

    You contract with the seller at one price (say 100K) Then you contract with the buyer for more (say 110K) You get the 10k difference. So the sale price to the buyer is 100k (the 10k applied off the sales price of 110k down to 100k)

    Hope that helps,

    JvM

  • jayvonmohr

    It's called a non-refundable option consideration fee (not a deposit). It's what allows the buyer the option to purchase (or not) at the end of the lease term (kind of like a car lease)

    Jay von Mohr

  • Tony Davis

    Great strategy. You can also assign “flip” these deals to other investors who are looking for monthly cash flow (some markets) and a nice little profit on the back-end “If/when” the tenant-buyer exercises their option to purchase.

  • youellc

    Is that the only method you are using or are you also wholesaling properties? I live in Lancaster/CA and I am just breaking into wholesaling. So much info but not sure where to start. Any advice would be appreciated.

  • Peter Coe

    What does a Mortgage Broker have to do with credit repair?

  • jayvonmohr

    Mortgage brokers get paid when they “sell” the loan product to the buyer. If the buyer can't qualify (yet) the M. broker will send them to a credit repair specialist to clean up their credit as fast as possible. Then the M. broker gets paid as soon as they are qualified.

    JvM

  • Pingback: Wholesaling Lease Options 101 | Real Estate Investing News Watch Blog Aggregator

  • http://www.isound.com/jvm Jay von Mohr

    youellc…. shoot me an email. We can go over strategies.

    JvM

  • mikekappel

    I think I am a bit late but I just came across this and love the idea – does any one have the document “Option to lease Option” that they could share with me?

  • http://www.engelvoelkers.com/us/california/ Luxury Homes

    Thanks for this interesting blog really nice one

  • george

    This sounds great but I have some questions can Joe McCall please get back to me at george@954foreclosuresolutions.com

  • http://www.neusgator.com Neus G

    This was a very good post. Extremely informative and has proved to be handy. Full of information and productive articles.

  • http://www.neusgator.com Neus G

    This was a very good post. Extremely informative and has proved to be handy. Full of information and productive articles.

  • Tim

    Hey JP, Thanks for this Great site with informative info to help us!!

    Thanks Joe for that Great article on wholesaling lease options. I love it!!

    Question: If the deal is out of the state, how you you get paid from your end T/B? How do you get the T/B send you the option consideration to you, if they haven't seen you in person and really don't know who you are? Thanks, Tim

  • http://www.isound.com/jvm Jay von Mohr

    For us, we found a local partner for our “feet on the ground” (an agent). She shows the house & gets the deposit fee.

    If you don't do that, & try the long distance thing, it would be good to have a solid website & talk to them enough to build credibility. They are signing a contract with you, so they have to have trust anyway.

    If all else fails, you could offer to put their deposit money in an escrow account (your escrow company) & release it to you the day the contracts are signed by them.

    JvM
    Lancaster, CA

  • Tim

    Thanks for the great info Jay von Mohr!

    Can I send you an email?

    Thanks, Tim

  • http://www.isound.com/jvm Jay von Mohr

    Absolutely. Right now we are kinda re-tooling our biz to straight wholesaling. We also farm out leads to a local short sale guy since sooooo many people here are upside down.

    My email is mohrmusic (at) hotmail (dot) com

    JvM

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    How to increase your profit by using “wraps” or use a lease option and “be the bank”! … He has built the best business model for investing!

  • Rob Jenkins

    Good morning Jay.

    I tried e-mailing you, but it bounces back. I think what Joe is doing is right on track. I had the opportunity to speak with him the other day and he could not have been more helpful.

    Could I e-mail you a couple of questions?

  • http://www.isound.com/jvm Jay von Mohr

    Sure. Email me at mohrhomes (at) hotmail (dot) com

    J

  • Chris

    I did this for 2 years before the bottom fell out here in CA. Issue is, the strategy is only feasible in a flat to appreciating market, unless you want your buyer to jump ship after the property depreciates. I had about 10 deals fall apart with no winners except for me in 2008 and I didn’t feel right continuing with it.

  • http://www.isound.com/jvm Jay von Mohr

    shoot me an email & I’ll fill ya in on what we’re doing.

    J

  • http://www.isound.com/jvm Jay von Mohr

    Chris,

    I came across a lot of owners who were upside down & wanted more than the current value. I had to pass on a bunch of those because I had no idea if the house would be worth that much for a looooong time & didn’t want to put someone in there that had little chance of making it work.

    Ironically, we have been making some money in Detroit flipping land contract & lease option deals.

    Let me know what you are up to. We are working short sales & wholesale deals right now in L.A.

    Thanks Chris,

    Jay von Mohr

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  • http://pulse.yahoo.com/_P3ZFHD6VVDFPSOMBKAJMK2B7V4 Laptop stand stand

    A real estate lease option offers a variety of financial benefits to an investor. Using this type of agreement means less investment up front. You don’t need the full amount to buy the house until the end of the agreement. You also can usually get into a lease option without much money up front at all. It is a lot like a typical rental agreement so you usually will only need the first month’s payment and a down payment equal to your monthly payment.

    You also can get approval in your agreement to sublease the property. This means that you rent the property to renters and make money each month off the property. You can often pay your monthly payment to the seller and still have some money left over, so you are making a profit of the property before you even own it.

  • http://www.ffcredit.com Personal Loans KY

    This is a great strategy to leasing. I like the clear and simple explanation.

  • Dwayne

    Hey Jay,how are you? When you assign your interest(option agreement,& lease) to the tenant buyer,do the t/b sign a lease agreement with the owner or they use the lease u created with the owner of the property?

  • Dwayne

    Hey Jay,how are you? When you assign your interest(option agreement,& lease) to the tenant buyer,do the t/b sign a lease agreement with the owner or they use the lease u created with the owner of the property?

  • http://www.centralcontracts.com/manufacturer/van VanManStan

    Really interesting article and informative about leasing. I work in the car lease industry and it is definitely a growing market and will carry on growing as people realise it is cheaper and so much more manageable.

  • Anonymous

    Well, you can also assign pull of these agreements to other investors seeking monthly cash flow in some markets and a nice little profit on the back-end when the tenant or buyer exercises his option.

    Real Estate Omaha

  • http://www.isound.com/jvm Jay von Mohr

    Hi Dwayne,

    I just saw your question today….odd. Basically, you are negotiating a contract with the seller. Once you have those contracts signed (a lease agreement & an option to purchase), that establishes a principal interest for you in the deal. Then you assign your principal interest position (the contracts) you made with the seller to the tenant buyer.

    You take the non refundable option to purchase money (which applies to the purchase price), & the seller gets the first months rent deposit.

    Sometimes the seller wants more of the option money. Everything is negotiable, so that’s up to you.

    Hope that helps,

    Jay von Mohr
    818-359-1617

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  • http://www.hirason.com/wholesale-handbags.html Wholesale Handbags

    Thanks for this. I wasn’t even aware of lease option to buy homes. Don’t see that many homes in Los Angeles that have lease option.

  • http://www.isound.com/jvm Jay von Mohr

    Yep. There’s a lot of extremely upside down properties
    in the L.A. area.

    Another option is to flip sub-to deals (if the seller isn’t too
    upside-down) & the buyer can handle the monthly payment.

    Jay von Mohr

  • http://www.thebarrierealestateblog.com/ Barrie Real Estate

    This is quite interesting article. The basic steps of wholesaling lease options really simple and easy, this helps more real estate home seller to quickly make a big chunks of cash with so little risk.

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  • http://www.netleasecapital.com/acquisitions-group/why-the-acquisitions-group Shane Adams

    It’s a great article for real-estate investors, especially for those who are just starting. You should remember that the market for real estate may drop significantly anytime. It would be more preferable to sell the house to someone who has a sure access to a mortgage loan.

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