The Art of the Flip…

 

Posted by Bill |

Those who know me know I LOVE lease options…and I especially love the lease option flip.
What is that, you ask? Is this some new, secret strategy? No, not at all. It is, in simplest terms, a lease option assignment.
The assignment is by far the easiest of the lease option strategies and requires the least amount of investment and risk in order to do the deal and profit. An assignment is when we negotiate the deal with a seller and contain all the terms of the transaction within the contract. We then assign (which means to sell) the contract to a third party. This can be the tenant/buyer, another investor, or even the original seller.
Here’s one way to flip a lease…step by step…
Step One: Find A SellerFind a motivated seller who is willing to sell their house with a lease option. I have my best success marketing to “tired landlords,” expired listings, and “for sale by owners.” Use newspaper ads, bandit signs, websites, and craigslist ads. And don’t forget your local REIA.
Step Two: Sign the PaperworkSign a Lease with Option to Purchase with the seller. I use a simple, one page document which allows me to purchase and/or transfer my interest to a third party. Make sure you have your documents reviewed by your real estate attorney.
Step Three: Find a Tenant/BuyerFind a qualified tenant/buyer who has the money for the option fee and has a good chance to get a mortgage in 6 to 12 months. I have used bandit signs, classified ads and flyers – all with great success. Now I use leasing agents to find my tenant/buyers. This is working quite well.
Step Four: Close with Tenant/BuyerI use a standard, realtor approved Residential Lease and a SEPARATE Option to Purchase. The agreements are with YOU as the seller/landlord. Collect the full option consideration, first month’s rent, and security deposit (if any).
Step Five: Assign the Documents to the Seller
Close the deal with your seller by assigning him or her your tenant/buyer lease and option to purchase agreements. The seller gets the first month’s rent and you keep the option consideration. If you used a leasing agent to find your tenant/buyer you pay the commission from your option consideration and keep the difference.
Now…rinse and repeat!
So, there you have it, you’ve found a property, got it under contract, and assigned your interest. And THAT is how you flip a lease (and option)!
What experience have you had with lease options? Do you use this as an investing strategy? I’d love to hear your thoughts and opinion below

Lease Option Investing: Real Estate’s Best Kept Secret?

 

Posted by Bill |

It was Rockefeller who said “Own nothing, control everything.” In other words — Don’t buy. . . Rent!!
Now I can hear most of you saying, what a crock! What kind of investor would advise anyone to rent instead of becoming an owner? That, of course, would be me.
What if I showed you a way to profit in real estate without large cash deposits; not having to apply for bank loans, no overhead, no maintenance, no taxes, no insurance or home owner fees to pay? You would probably say that I am out of my mind.
Well it’s time to learn about what may be the best kept secret in real estate: it’s called a Lease Option, also known as “rent to own.” Anyone can control real estate that generates immediate positive cash flow without having to become a real estate expert or by having to look at hundreds of houses. If you understand a simple lease and option to purchase, then you can put together all kinds of profitable real estate transactions with just a newspaper and your cell phone.
Controlling real estate through a lease option is by far the superior method of financing your real estate investments. Using a lease option helps remove the traditional adversarial relationship that exists between buyer and seller and produces greater profits.
In most real estate transactions there is a natural tendency between the buyer and seller to try and one up each other. The buyer wants a lower price; the seller a higher one. Not to mention all the other items that have to be negotiated. Next, all of the difficulties associated with deposits, qualifications, appraisals, title companies, lenders, escrows, lawyers, and on and on and on. Lease option investing eliminates these difficulties and lets the buyer and seller have a win-win experience and get the deal done.
A lease option has everything an you need as an investor to make prudent and profitable investments in real estate. Using small down payments (yes, even just $1.00 down), you can control properties that could require 20% down when using bank financing. And we won’t begin to talk about all the hoops you would be expected to jump through.
A good deal will generate you profits in three ways:
Cash now from non-refundable option consideration,
Cash flow from a monthly rent, and
Cash at closing
Controlling properties by lease option is absolutely the best way to be involved in controlling homes in obtaining great cash flow, high profits and minimum risk. Investing by lease option can be the best way to create quick cash flow for the newbie or seasoned investor.
Thanks for reading. Let me know what you think in the comments area below, and hey – tell your friends about us!

Pros and Cons of Loan Assumptions

By Daniel Brozost, Esq.

 

Borrowers often save money, but lenders typically have wide discretion on who qualifies.

In the commercial real estate market, the availability of credit has diminished significantly over the past few years. The Mortgage Bankers Association quarterly survey of commercial/multifamily mortgage bankers clearly illustrates this trend. Loan originations in the second quarter of 2009 were 54% lower than during the same period in 2008, and 83% below the peak reached in the second quarter of 2007.

Given the difficulties of finding financing in the current commercial real estate market, loan assumptions may provide an attractive option for buyers of real property seeking the funding they need in order to close deals.
The concept of a loan assumption is quite simple. A buyer of real property assumes the existing financing of the seller/borrower by stepping into the shoes of the existing borrower on substantially the same terms. Prior to considering a loan assumption, however, buyers should understand the advantages and disadvantages, and what they can expect to encounter during the process.

Benefits of loan assumptions

Loan assumptions may provide several advantages to a prospective purchaser, particularly if the seller has a pre-negotiated assumption right built into its loan documents. In such a scenario, the loan documents allow the existing borrower to transfer the property and the loan to a buyer upon satisfaction of certain conditions.
Specifically, a lender is likely to require payment of a transfer fee of around 1% of the loan amount, payment of its legal and administrative expenses and approval of the transferee's financial condition and experience.
Although lenders can generally exercise a great deal of discretion in approving a prospective transferee, the fact that a seller has a pre-negotiated right to transfer the property and assign the loan is a good sign that an assumption will be feasible. A buyer should ask whether such a pre-negotiated right exists as early as possible in the purchase process.
In many instances a loan assumption will also save a buyer time and money. Loan assumptions can often be fully approved and documented in less than 30 days. Conversely, a newly originated loan may take weeks and even months to complete. Furthermore, a loan assumption generally requires less documentation than an origination, which can reduce a buyer's administrative and legal expenses.
An assumption may also permit a buyer to benefit from the seller's existing interest rate and other pre-negotiated terms, which may be better than prevailing market rates and terms for an origination.
When considering a loan assumption, buyers should ask for, and carefully review, copies of the loan documents as early as possible in the purchase process.

Pitfalls of loan assumptions

Even where pre-negotiated assumption right exists, lenders have broad discretion as to whether a new borrower is qualified. For instance, lenders will scrutinize a buyer's financial condition and its specific operational expertise in order to determine if the buyer is at least as qualified as the seller.
If a seller does not have a pre-negotiated transfer right, lenders also have the ability to alter loan terms. In such a scenario, lenders may raise the interest rate, require more stringent oversight or cash management provisions, and increase or require borrower reserves.
The length or complexity of the assumption process will also depend on the type of loan and lender involved. For instance, if the loan in question is structured as a commercial mortgage-backed security, the process will likely be much more complicated and time-consuming.
As a result of these potential difficulties, buyers should ensure that they have a broad enough financing contingency in case they need to explore other financing opportunities.
Buyers should be aware of the specific loan provisions involved with a loan assumption, particularly the assumption and release provisions. Buyers should carefully review the provisions of the loan assumption agreement and any other documents required by the lender, in order to ensure that any changes to the loan terms are accurately described in the assumption documents. Many provisions may be subject to negotiation.
Loan assumptions offer a potentially attractive alternative to buyers seeking financing for purchases of commercial property. It is critical, however, that they understand the pros and cons prior to committing to an assumption or removing financing contingencies as part of a purchase.
Daniel Brozost is a partner with Beverly Hills, Calif.-based Raines Law Group LLP, which specializes in real estate law.

Using Master Lease Option Techniques For Apartment Real Estate Investing

Posted In Apartment Investing|

 

For those interested in apartment real estate investing or those that want to get into any multi-family and rental real estate investing, Master Lease Option techniques can be the best way to enjoy the benefits of buying apartment buildings without the use of an apartment REIT. Because real estate investor financing may not be an option for beginning real estate investors and those that are interested in apartment real estate investing might be required to have large down payments by real estate investment lenders, Master Lease Option agreements can be a win-win situation for the potential buyer and seller. The seller retains ownership benefits, while the new real estate investor can enjoy monthly income from the arrangements that are made under a master lease agreement.

Master Lease Option methods offer a different way for those that are interested in apartment real estate investing to generate monthly income, while allowing a seller to retain the tax benefits that can come with rental real estate investing.

This mutual joint venture type of relationship might be similar to an apartment REIT, but there are benefits that are easy to enjoy for both parties of the Master Lease Option. The beginning real estate investor leases a unit or units and sub-leases them for a higher rent and pockets the difference. The higher rent sub-leases have a market in the real estate investing market because they can be sold or syndicated to other real estate investors for a premium and it generates a fee or percentage for the person that might be wholesaling the lease contracts.
Through the Master Lease Option, the apartment building owner can wholesale the original lease agreements or the new real estate investor that is test-driving the building can syndicate the sub-leases and move on to the next endeavor.

Depending on how the master lease agreement is drawn up, it is a mutually beneficial arrangement and many real estate investors are quite astute at generating a lot of monthly income with these Master Lease Option arrangements. The key is to learn how they work, have the sample master lease agreements or the lease contract templates and understand the best practices.

Under a Master Lease Option, it is possible to invest in any multiple unit facility, including mobile home parks and self-storage facilities, but it is most popular with apartment real estate investing because it is easier to facilitate the transactions because of demand. For this reason, it might be pointed out by some of the savvy rental real estate investing experts that a Master Lease Option works best on about any apartment or multi-family rental situations, except for the rehab or fixer-upper apartment buildings or those that are in the luxury class, which can have bigger exposures and be harder to rent.

No matter what, once you learn the Master Lease Option techniques that the experts use, it is possible for the average investor to enjoy monthly rental income without an apartment REIT or a large mortgage and down payment, which is what makes a Master Lease Option arrangement so popular for those that have learned how it works.