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
There is a clause about the deposit where it is non refundable right? Or what is the clause about the deposit?
Hey this is great!
Like a Lease Option Flip! Or a Land Contract CFD Flip! Or a Wrap – AITD Flip!
AWEEEESUM!
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?
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!
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.
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.
Can you provide a “Option to Lease Option” Contract?
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)
Jay von Mohr
PS) Great info site JP
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
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)
It does apply 100% off the sales price (IF buyer takes the option & buys). If they don’t buy, it’s Not refundable.
Jay von Mohr
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.
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.
What does a Mortgage Broker have to do with credit repair?
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
PS) This was an interesting webinar Wendy Patton had about a mortgage broker/credit repair service for lease options (when you stay in the deal for the back end cash out).
http://www.wendypatton.com/credit-repair
youellc…. shoot me an email. We can go over strategies.
JvM
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?
This sounds great but I have some questions can Joe McCall please get back to me at [email protected]
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
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
Thanks for the great info Jay von Mohr!
Can I send you an email?
Thanks, Tim
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) comJvM
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?
Sure. Email me at mohrhomes (at) hotmail (dot) com
J
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.
shoot me an email & I’ll fill ya in on what we’re doing.
J
you can email me at [email protected].
J
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
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?
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
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.
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.
How do you a motivated seller that is willing to do a lease option? Ive contacted many sellers and landlords via Craigslist and on-line websites but having trouble finding any sellers that will consider doing a lease option. It’s mentioned that “almost anyone can easily do 1-2 deals a month.” How do you find them and how do you get them to agree to do a lease option?? Thanks.
So when you have the Tenant-Buyer sign the Lease Option agreement, do you sign as the owner or put the Seller’s name there?
Once you have found a Tenant Buyer and we sign the Leae Option Agreement, does the Optionee sign the Lease Option Agreement with the Tenant Buyer or is that left for the owner to sign? Thanks Elle.
I need one thing cleared up. Which Lease option contract do you assign back to the Seller? Is it the tenant buyers lease option
Hi, Brian. Basically you sign the Lease Option paperwork with the Tenant-Buyer, then assign those Lease Option docs back to the seller. Make sense?
Basically you get an option to lease agreement between you and the seller. Then you find a tenant-buyer and sign new Lease Option paperwork with the Tenant-Buyer, and then assign those Lease Option docs back to the seller. Make sense?
I’d say you sign as the “Optionor” then when you assign those docs to the property owner, he becomes the “Optionor”. You can be the “Optionor” initially due to the option to lease agreement you signed with the owner.
…Or to someone who’s creditworthiness can be rehabilitated fairly quickly. 🙂
Joe offers one on his site. Just follow the link over to him in the article above.
Yeah, basically you are assigning your position you have with the tenant buyer in all the contracts over to the seller (the seller takes over your position in all the contracts).
Some people prefer to go the other way & assign your position you have with the seller in all the contracts over to the tenant buyer.
Jay von Mohr
Vivian,
Hi I have been doing Lease Options in Central Ky. I would love to talk to you about strategy! Its hard to find others in KY that are actively investing in this manner. Hope you contact me!
Yvonne
I would love to Yvonne.The question is “how” without posting all of our personal info. 🙂
Contact me at my email at [email protected]. Look forward to hearing from you!
This is all Great My Question is how do you get the leads the people that want to sell there Home on a Lease Option . What advertisement would you use my problem is what should i say to them to get them to want to do the Lease Option.
Hi, Romao. One easy way Joe finds them is by calling houses for sale and for rent in Craigslist.com
He literally just says to the houses for sale something like, “Would you be open to renting it out if you can’t sell it for some reason, with an option to buy it a little later?” And for the “for rent” ones he says, “Instead of just renting, would you be open to rent-to-own, and maybe selling it in a few years?”
Easy as that!
Great stuff. You bring credit to the field. In this “up” market, lease options seem to be few.
Agreed?.
Thanks,
Steve Brown
do you need to do title search to make sure there is no second mortgage or other leins on the property so your tenant-buyer doesn’t end up getting screwed when they go to exercise the option?
@disqus_hRFP6lN2ok:disqus – Sure, that’s always an option. But I’m pretty sure Joe doesn’t do that on all his wholesale lease option deals… after all, even if the title’s clear today, there’s no guarantee it will be exactly the same situation in a couple of years when the tenant-buyer is ready to go on executing their option to purchase anyways. A title search today only guarantees what the title looks like today… not 2 years from now. So it would have limited value. Personally I’d go instead for some type of guarantee in writing from the seller that they have clear title, and no liens other than what’s clearly stated. That’s my take.
I would guarantee tenants from the gate or with in a month of take over nomatter what people want to see there money ASAP so having the ability to say i can make a call and have 1-? potential tenants there to look at it with in the week have them moved in on contract I would think would be an advantage…but IDK …im knew to this dont have much money and need to figure out how to get the cash to start my self ?
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…
This is the part that I am unclear on like how the math work on this, “why” would the seller want the lease option docs back? And the option consideration you are talking about is what you received from the tenant-buyer correct?
Do you give the seller option consideration and then the tenant-buyer gives you option consideration as well?
How many total contracts are there in this kind of transaction? One between the wholesaler and the seller another between the wholesaler and the tenant buyer and then an assignment contract between the wholesaler and seller?
Great Stuff! I have a few questions. Do you let the seller know that it will not be you living in the property and that you will find a tenant to do the lease option upfront? What would that conversation sound like once the seller wants to do the lease option? In addition, does the rent amount go towards the total sale price?