Cooperative Lease Options – Get Paid Fast

I’ve written extensively about sandwich lease options where you make a minimal investment but get paid three times – an option fee when you sell the house, a monthly income during the lease period, and a profit when the house is bought in the end. Another version is Cooperative lease optionscooperative lease options also know as wholesaling lease options. Using this version, you won’t make as much money but you will make money faster.

This version is typically best suited to the beginning investor that has little operating capital although any investor can use it when the opportunity presents itself. Essentially, you still need to find another buyer. If it’s another investor, you’ll need to wholesale by leaving meat on the bone for the investor. But it could be an end buyer that you sell to for full retail.

Getting Paid for Cooperative Lease Options

In any scenario of the cooperative lease option, you only get paid once compared to being paid three times in the sandwich lease option. In the cooperative lease option, the way you get paid is by reassigning your lease option to another person and charging more for the reassignment than you paid for it.

This is faster and easier than a sandwich lease option. In the sandwich lease, you’re in the middle of the deal until the end buyer makes the final purchase. In a cooperative lease option, you are in and out of the deal quickly. No need to semi manage the property until the purchase is made. As with most creative investment techniques, there are multiple ways of setting up the deal.

Cooperative Lease Options are About Flipping Lease Options

With cooperative lease options, one of the most common is that you arrange the original sandwich lease. The original contract must specify that you can reassign the contract. Then, through your networking efforts with other investors, you find another investor that has an end buyer looking for a lease option. You have the house under a sandwich lease agreement but another investor has the end buyer. You essentially flip the sandwich lease to the other investor that ultimately puts an end buyer in place.

It is important to remember when doing a cooperative lease option NOT to find the buyer for the seller. It might sound like you are doing that and in essence you really are, but you can’t describe it that way or explain it that way to your buyers and sellers. You are the buyer and you are “assigning” your contract to another buyer for a fee from them to buy your contract. For example, I usually take the buyers option fee as my assignment fee for a wholesale lease option. This can be anywhere from $2500-$10,000 in my area of the country. Can you use an extra $5000 this month?

Another Way to Write a Cooperative Lease Option Agreement

One of the best things about being a real estate investor is your ability to write contracts in many creative ways. A more profitable version of the cooperative lease option is for you to have the end buyer. You keep the contract in place between you and the end buyer until he or she is ready make the final purchase. But maybe you aren’t able to keep up your end of the sandwich lease purchase in the end. Who knows where your finances might be two years down the road?

You might have to bring in another investor to assign your lease option to and he or she makes the purchase from the original seller and then sells to the end buyer. In that scenario, you are able to collect the higher lease option fee from the other investor and the higher rent until the final purchase is made. What the cooperative lease option does is flip to the other investor the difference between your agreed to purchase price and what the end buyer is paying.

Real estate investing is all about finding creative solutions that work for you and others.

By Wendy Patton

For more than 30 years, I’ve used the Sandwich Lease Option System to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It’s because of that fact and my personal success that I share the Sandwich Lease Option System with others.

If you found this information useful, please visit again soon at wendypatton.com.

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Subject To Deals aka Get the Deed

I write a lot about leasing with the option to purchase because it’s at the top of my list for how to creatively acquire property for very little money. However, I also frequently acquire homes using subject to deals (aka get the deed). Anyone can use this financing method but few do because many retail buyers even think it’s illegal. It’s not.
Buying subject to means that you take over the existing loan on the mortgage (without putting your name on it). The reason some people think that is illegal is because since the 1970s or 1980s, most mortgage contracts have a “due on sale” clause. That implies that the full sales price from the original sale must be paid off if the home is sold. This is a contractual issue. Not a legal issue. If the loan holder wanted to enforce that contractual clause, they could. They would have to incur their own legal costs to do so.

Subject to dealsSubject to Deals (aka get the Deed) are for Investors

Subject to deals are a form of owner financing. The current owner already has financing in place. Instead of the investor going through the painstaking task of applying and being approved for a new loan, the investor simply takes over the sellers existing loan. The seller can make a profit on the deal but that becomes a second mortgage that the seller puts in place.

Like most creative financing deals, there are several ways these deals can be put in place. The one thing that needs to happen is the terms of the original loan contract need to be adhered to. However, there are three common ways that subject to deals are put together. One is for the investor to obtain the original loan account number, mailing address, and due date to make the monthly payments. As long as the payments keep coming, the lender isn’t likely to call the “due on sale” clause (no matter whose name is on the check).

Another common scenario is for the investor to send the loan amount plus the amount for the second mortgage directly to the seller. The risk here is that the seller simply pockets all of the cash without keeping the original loan current. This is not a preferred way to write a subject to deal contract.

The third common method is using a third party to distribute the money. The investor sends the money to a third party (essentially an escrow company) and that company sends one check to the original lender and another check to the seller for the second mortgage.

Why You Would Invest in Subject to Deals

One main reason you want to invest this way is because you can take ownership of the property without putting up much of your own money. The other is because you don’t have to take out a new mortgage. Taking out a new mortgage takes time and money – if you can qualify. You’ll be filling out long application forms when you don’t know if you’ll even qualify. If you do qualify, at closing, you’ll be paying all kinds of loan fees, setting up escrow accounts and who knows what other costs will be slipped into the loan. A common term for many of the loan costs is “garbage fees”. It makes a lot more sense to take over an existing loan where all these costs and troubles have already been taken care of. You simply take possession of the house and start making the existing mortgage payments.

There are many reasons why a lender won’t call the loan due as long as it stays current. Beyond the legal costs, the government keeps count of nonperforming loans and accesses punishment to irresponsible lenders that have to take a property back. Something else to keep in mind is that the investor is taking almost no risk. Even if something goes wrong with the loan and the house is foreclosed on, it’s the seller’s name that is still on the loan. In subject to deals, it’s the seller that takes the hit on his or her credit report rather than the investor.

Each of my articles are intended to help investors find creative and low cost investment techniques.

For more than 30 years, I’ve used the Sandwich Lease Option System and Subject to Deals to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It’s because of that fact and my personal success that I share the Sandwich Lease Option System with others.

By Wendy Patton

If you found this information useful, please visit again soon at wendypatton.com.

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What did you think of this article? Please leave a comment below.

Working With Realtors as an Investor

Some realtors (especially new ones) think hooking an investor is a great path to multiple commissions. The truth is that investors and owner/occupiers are very different animals. An investment property is very different from a residence. Either investors want to flip the Photoproperty fast or they want a tenant in it providing a reliable income.

The owner/occupier buys the dream of a white picket fence that keeps the children safe and happy. Working with realtors as an investor is all about bringing home the bacon and bread to feed the children. The owner/occupier is almost always a one time deal. Investors will be back for another deal in a few months.

Working With Realtors as an Investor Means Staying On top of the MLS

Realtors working with successful investors will find that investors have ice water in their veins. Working with realtors as an investor means pushing out 30 or 35 potential offers to obtain a single bid. Then, another 10 or 20 bids will be rejected by the seller before one finally goes through to closing. Working with realtors as an investor really is a job. It will bring repeat business and commissions but it means scouring the MLS every day to find the latest and greatest opportunity coming onto the market.

Realtors will do well when they find two or three earnest investors that buy four or five houses each year. What the successful realtor needs to be wary of is the “so called” investor that is nothing more than a tire kicker. The ones that know there are big profits to be made in real estate but never pull the trigger.

Working with realtors as an investor is not for the timid realtor. It means knowing your game and being able to execute deals fast. What investors specialize in is closing the deal tomorrow. It’s about the ex-husband/father that is way behind on his child support payments and is about to go to jail next week. He has an inherited house that he doesn’t want. If the investor can pay for it in three days to keep the guy out of jail, he or she will get a great deal.

Working With Realtors as an Investor Means Speaking a Different Language

Realtors that don’t know what a 1031 Exchange is, are going to have a difficult time working with professional investors. The same goes for those that don’t know how to put a seller financed deal together. In today’s world, a realtor not only needs to be able to put together a seller financing sale, he or she needs to have resources in place to bring in third party financing.

Other terms that realtors working with investors need to know are “hurdle rate”, “cap rate”, “rate of return”, and “income vs. capital gains”. The realtors’ knowledge of real estate math has to be deeper than just a mortgage calculator. Speed is of the essence. Top notch realtors working with investors are able to take an offer and complete it in a couple of days. If you can’t do it yourself, you better have a staff that can.

Working With Realtors as an Investor Means Offering Round Trips

Here is the big bonus when working with realtors as an investor. Investors can offer you a round trip. The realtor can earn both the buying and listing commission on a property. In exchange for the hard work, the realtor should expect to be given both the buy commission and then the sales commission a few months later when the investor sells the property.

Working with realtors as an investor means the realtor needs to be sure the investor has a source of capital. Don’t get caught doing a lot of legwork for nothing.

By Wendy Patton

For more than 30 years, I’ve used the Sandwich Lease Option System to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It’s because of that fact and my personal success that I share the Sandwich Lease Option System with others.

If you found this information useful, please visit again soon at wendypatton.com.

For more exclusive content, please subscribe to my RSS Feed and YouTube Channel.

What did you think of this article? Please leave a comment below.

Buying Your Future Home With a Lease Option

Buying real estate with lease options continues to be a solid real estate investment strategy and is completely valid for your primary residence or investments. Many people are familiar with rent to own for living room furniture, washer and dryer, and other household appliances. But far fewer people are aware that buying real estate with lease options (also known as lease-to-own, rent-to-own, lease/purchase, or lease with an option to purchase) is a legitimate and even growing method for controlling houses.

Investors in particular want to be aware of this real estate tool. There are several versions that I teach about in multiple courses that can be found at https://wendypatton.com/products. There are many strong benefits to buying real estate with lease options but the biggest is controlling as much real estate with a high profit potential as possible for the smallest investment of your own money.

Buying Real Estate with Lease Options is not a Commitment

The lease-option agreement allows a buyer to lease a property for a set period of time (typically between 1-3 years) with the option to buy the property before a contractual future date. If something turns up wrong with the house, the location, the market goes sour, or for any reason, you can walk away from the deal losing nothing more than your option fee.

Or in an upswing market as most are today, you’ll see the value of the property value increase month by month after you have the purchase price locked in (pure profit). In an upswing market, buying real estate with lease options is an especially low risk investment with almost an exclusively upside potential for high profits. Obviously, the lower the purchase price you lock in the more you can sell for as the price appreciates.

Sandwich Lease Option Investing

One version of buying real estate with lease options is the sandwich lease option. This version requires the least amount of money on the part of the investor. You seek out a willing and distressed seller (yes, these exist in rising markets) to help solve a problem. The problem to be solved is almost always financial but can come in many different forms. One of the most common is someone that needs to move a long distance and needs to sell fast. Another is someone has inherited a house and is now expected to pay the taxes and insurance along with other costs. Still another is someone that has house in dire need of repairs and maintenance.

In the sandwich lease, you gain control of the property by paying a small lease option. You then flip it into another lease option with an end buyer (someone that wants to live in the home). Even if the house needs repairs, you can make some repairs the responsibility of the end buyer in exchange for a reasonable purchase price. Your benefit in this version is the repairs improve your equity position even if the purchase option isn’t exercised. The end buyer becomes more motivated to complete the purchase because they now have sweat equity and/or money invested in the repairs. The entire deal becomes a win-win-win for everyone involved. The seller has his or her problem solved, you make a reasonable profit in the middle of the sandwich lease, and the end buyer is in the position to become a homeowner.

However, be sure you understand the Dodd-Frank Act that was passed into Federal Law in 2010. This is consumer financial law that was passed as a result of the recession. It generally requires that you complete the purchase of the house before you can sell it to an end buyer. In most states, if not all states, you can use seller financing but you must give the end buyer several months to make the purchase decision. Still, this becomes a win-win-win scenario for all involved when you construct the contracts with high ethics. It’s best if you first talk to a real estate attorney.

Other Versions of Lease Options

Sandwich lease options are only one version of how this can be done. A few others include:

  • Traditional lease options giving you time and flexibility to decide if you want the house as a long term investment.
  • Cooperative Options (wholesaling options to other investors).
  • Gaining control of the property and then selling with owner financing to reliable people deserving a second chance in life but the banks won’t finance.
  • And several other versions based on being creative.

If you are interested in low cost and low risk investing with a great upside, be sure to avail yourself of the many resources that I have put together to get you started, to help you understand how to put deals together, and to make any kind of deal anytime!

By Wendy Patton

For more than 30 years, I’ve used the Sandwich Lease Option System to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It’s because of that fact and my personal success that I share the Sandwich Lease Option System with others.

If you found this information useful, please visit again soon at wendypatton.com.

For more exclusive content, please subscribe to my RSS Feed and YouTube Channel.

What did you think of this article? Please leave a comment below.

Buying Real Estate With Lease Options

Buying real estate with lease options continues to be a solid real estate investment strategy and is completely valid for both your primary residence or investments. Many people are familiar with rent to own for living room furniture, washers and dryers, and other household appliances. But far fewer people are aware that buying real estate with lease options (also known as lease-to-own, rent-to-own, lease/purchase, or lease with an option to purchase) is a legitimate and growing method for controlling properties.

Investors in particular want to be aware of this tool. There are several versions that I teach about in multiple courses that can be found at https://wendypatton.com/products. There are many strong benefits to buying real estate with lease options but the biggest is controlling as much real estate with a high profit potential as possible for the smallest investment of your own money.

Buying Real Estate with Lease Options is not a Commitment

The lease-option agreement allows a buyer to lease a property for a set period of time (typically between 1-3 years) with the option to buy the property before a contractual future date. If something turns up wrong with the house, the location, the market goes sour, or for any reason, you can walk away from the deal losing nothing more than your option fee.

Or in an upswing market, as most are today, you’ll see the value of the property value increase month by month after you have the purchase price locked in (pure profit). In an upswing market, buying real estate with lease options is especially low risk investment with almost an exclusively upside potential for high profits. Obviously, the lower the purchase price you lock in the more you profit as the price appreciates.

Sandwich Lease Option Investing

One version of buying real estate with lease options is the sandwich lease option. This version requires the least amount of money on the part of the investor. You seek out a willing and distressed seller (yes, these exist in rising markets) to help solve a problem. The problem to be solved is almost always financial but can come in many different forms. One of the most common is someone that needs to move a long distance and needs to sell fast. Another is someone that has inherited a house and now needs to pay the taxes and insurance along with other costs. Still another is someone that has a house in dire need of repairs and maintenance.

Picture1In the sandwich lease, you gain control of the property by paying a small lease option fee. You then flip it using a second lease option to an end buyer (someone that wants to live in the home). Even if the house needs repairs, you can make repairs the responsibility of the end buyer in exchange for a reasonable purchase price. Your benefit in this version is the repairs improve your equity position even if the purchase option isn’t exercised. The end buyer becomes more motivated to complete the purchase because they now have sweat equity and/or money invested in the repairs. The entire deal becomes a win-win-win for everyone involved. The seller has his or her problem solved, you make a reasonable profit in the middle of the sandwich lease, and the end buyer is in the position to become a homeowner.

Other Versions of Lease Options

Sandwich lease options are only one version of how this can be done. A few others include:

  • Traditional lease options giving you time and flexibility to decide if you want the house as a long term investment.
  • Cooperative Options (wholesaling options to other investors).
  • Gaining control of the property and then selling with owner financing to reliable people deserving a second chance in life but the banks won’t finance.
  • And several other versions based on being creative.

If you are interested in low cost and low risk investing with a great upside, be sure to avail yourself of the many resources that I have put together to get you started, to help you understand how to put deals together, and to make any kind of deal anytime!

By Wendy Patton

For more than 30 years, I’ve used the Sandwich Lease Option System to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It’s because of that fact and my personal success that I share the Sandwich Lease Option System with others.

If you found this information useful, please visit again soon at wendypatton.com.

For more exclusive content, please subscribe to my RSS Feed and YouTube Channel.

What did you think of this article? Please leave a comment below.

Seasoned Funds and Paper Trails

Seasoned funds and paper trails are about being certain you can demonstrate to a mortgage underwriter the source of any unexpected funds that appear in your bank accounts. Typically, underwriters recheck your bank accounts a few days before funding your mortgage. If he or she finds significant but unexpected changes in the account balance it will often result in the mortgage being denied.

 

Many Sources of Seasoned Funds and Paper Trails

Generally, underwriters want to see a 90 days of documentation for any major and unexpected changes in your bank accounts. The sources of these funds are typically legitimate and can come from many places. They may come from a business transaction that you were planning on to help finance your down payment. Something like a payment to your small business that you transfer to your personal account. Or the sale of another real estate investment that you had in the works. Or the sale of another asset such as a boat. What is important is that these are seasoned funds with paper trails.

What underwriters are concerned about is the funds come from another loan that increases your debt to income ratio. Another relatively common undocumented source of funds is a financial gift from relatives. Unless these are seasoned funds with paper trails, underwriters will consider these as loans that you have to repay. About the only possible solution is having a notarized letter stating this is a gift that will not be repaid.

New Funds Don’t Always Kill a Mortgage When These are Seasoned Funds With a Paper Trail

Taking out another loan to help with the down payment and closing costs won’t always cause your mortgage to be declined. However, the underwriter will need to know what the terms of that loan are, how much your payments are going to be, if the payments are fixed or variable, and all of the other things that help them determine whether you qualify for this new loan even when making the payments for the other loan. You need to have that paperwork available to show seasoned funds with a paper trail.

Even if the money was a gift from a relative (or otherwise), the underwriter is going to want to know where they got the money. You’re still going to need to show 90 days worth of seasoned funds with a paper trail. Lenders are not in the business of repossessing houses. In light of the massive repossessions in the recent past, lenders are demanding a clear view of seasoned funds and a paper trail.

When the funds come from selling a previous property, they are going to insist on seeing the HUD 1 form related to the transaction. When the funds come from selling another asset, the underwriter will insist on seeing a bill of sale (preferably notarized). If the money is gifted, you’ll need a notarized letter from the donor along with a paper trail showing where the money came from over the past 90 days.

If you are planning to buy property in the near future or even refinancing, keep all of the paper work involved from significant transactions and voluntarily make it available to the underwriter. If an unexpected transaction comes up while you are waiting for a mortgage to be funded, talk to the loan officer about the seasoned funds and a paper trail that will be needed to keep the mortgage qualified.

By Wendy Patton

For more than 30 years, I’ve used the Sandwich Lease Option System to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It’s because of that fact and my personal success that I share the Sandwich Lease Option System with others.

If you found this information useful, please visit again soon at wendypatton.com.

For more exclusive content, please subscribe to my RSS Feed and YouTube Channel.

What did you think of this article? Please leave a comment below.

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