Month: March 2017

The cooperative lease option (wholesaling) is a version of the lease option that doesn’t get much attention. What’s great is that cooperative lease options pay you a decent amount of money much faster than a straight forward lease option or a sandwich lease option. Be it a draw back or not, the cooperative lease option doesn’t pay as much as the other two versions. But that’s the nature of wholesaling.

Cooperative lease options are a modified form of a sandwich lease options where the original investor leaves meat on the bone for another investor. This technique is better for beginning investors than for the more experienced investors. However, experienced investors needing to raise quick cash want to have this technique in their toolbox. It’s an ultra-low cost way of getting started as a real estate investor but the profit margin is correspondingly low.

This version requires little or no operating capital. The most secure version is paying the lease option fee to gain control of an option that is contractually ‘assignable’ to a third party. As a wholesaler, once you establish a business relationship with a few wholesale buyers, you may trust them to pay you a ‘finder’s fee’ that doesn’t even involve you putting up the original option fee.

Getting Paid for Cooperative Lease Options

In most scenarios of the cooperative lease option, you are only 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 the original option fee.

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 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 methods is that you take the lead in a 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 lease option agreement but another investor has the end buyer. You essentially flip the sandwich lease to the other investor who ultimately puts an end buyer in place.

It’s 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 $2,500-$10,000 in my area of the country. Can you use an extra $5,000 this month? 

Using a Cooperative Lease Option to Complete a Sandwich Lease Option

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 to 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.

In the cooperative lease option (wholesaling) scenario, you only get paid in one way (the assignment of your option) but you get paid today.  You don’t make as much on the deal, but you are done with it.  It is quicker and easier money then a sandwich lease option.

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

By Wendy Patton

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

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.

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). “Subject To” aka “Get the Deed” is when you purchase property subject to existing financing already in place, along with any other attached liens or encumbrances.

Anyone can use this financing method but few do because many retail buyers even think it’s illegal. It’s not. You do not formally assume the loan through the bank. The owner deeds the property to you and you take over making the payments to the lending institution. Regardless of the credit environment, every real estate investor should have “subject to” in their arsenal of financing methods.

Subject to Deals (aka Get the Deed) are a Type of Owner Financing

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 (and costly) 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 owed to the seller.

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. There are three common ways that subject to deals are put together:

1. The investor obtains 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).
2. Another common scenario is for the investor to send the original 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 making the original loan payment. This is not a preferred way to write a subject to deal contract. Especially if the seller has a history of credit problems.
3. 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. This is the most secure but has the added cost of the third party.

Why You Would Invest in Subject to Deals

One main reason you want to invest this way is because you take ownership of the property without putting up much (if any) of your own money. The other is that 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. 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.

Why Sellers Accept Subject to Deals

Several years ago, before I knew him, an acquaintance was forced to sell a house because of a divorce. He and his wife had a successful medical equipment business that went out of business because of the divorce.

As a result, a relatively newly built nice home had to be sold quickly. When it didn’t sell in the first month and the mortgage came due, he ordered the realtor to drop the price like a rock. At that point, the house did sell quickly but he took an almost $25,000 loss. What he didn’t know at the time is he almost certainly could have prevented that loss if he had known about subject to deals aka get the deed.

Had he sold the house using a wraparound mortgage or one of the many other seller financing methods, he likely would have made money on the deal instead of taking a bath.

Finding an owner who will sell “subject to” is not as hard as it seems. These are some of the same distressed owners that you find in other motivated seller deals. Most cannot keep making the payments and welcome the relief. Reasons vary: some need to move, some desire to rent, own two homes, divorce, foreclosure, poor health, etc.

You use the same criteria and numbers in determining a good deal as with any other financing. Just because it’s a “subject to” deal does not mean you want to buy a bad deal. One thing you want to look at closely is whether the deed has any liens against it. This shouldn’t surprise you if the seller is having financial problems. You want to be sure to fully understand the total numbers and that you will profit from the deal.

Each of my articles are intended to help investors find creative and low-cost investment techniques. I hope you gained insight from this one.

By Wendy Patton

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.

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.

Selling real estate on lease options is a powerful technique enabling you to tap into a huge pool of people wanting to buy a home but for one reason or another but aren’t quite able to make the purchase right now. Whether you’re an investor or a homeowner, when it comes time to sell, you should always take a close look at selling real estate on lease options.

Step 1. Finding buyers for lease options. Few sellers give any thought to selling real estate on lease options until a buyer approaches them with the idea. You should consider this person but if you’re ready to go this route, look at other potential buyers/tenants by listing the lease option on craigslist, other local classifieds, and talking with a relator. This will dramatically increase your pool of perspective buyers to select from. Even before you do any of this, first take advantage of my free training and expertise on the subject by visiting wendypatton.com/articles or take advantage of the more formal training I offer at wendypatton.com/products.

Step 2. Performing background checks. You should first whittle down the buyer pool by checking references and keeping those with a steady source of income on the short list. The short list is where you begin looking at the credit history of individuals. You’ll find some that show a long history of not paying their debts. You want to avoid those people while preferring those that had a one time financial problem. It might even be as bad as a foreclosure. However, many foreclosures are now falling off of people’s credit histories. What you want to avoid is a long term pattern of people not being financially responsible. Those with one or two credit blemishes will soon qualify for a mortgage and will be able to complete the purchase.

Step 3. Engage the services of a mortgage broker. This step is often skipped, but it shouldn’t be. It’s a good idea to contact a loan officer or mortgage broker to at least discuss the potential buyer’s prospects for obtaining a mortgage at the end of the lease term. When selling real estate on lease options, the mortgage broker can realistically help you and the potential buyer determine when the buyer will qualify for a mortgage. This is an important consideration for determining the length of the option period. You may also want to put the buyer in contact with a credit counselor.

Step 4. Starting the paperwork. Begin negotiating and drafting the terms of the purchase option. Make the lease agreement and option agreements separate contracts to minimize the possibility that the lease can legally be construed as granting equity in the property. Seek out the services of a qualified real estate attorney having experience with lease options.

Provide the buyer with a disclosure statement. The disclosure statement tells the buyer about any deficiencies with the house that you are aware of. Almost every state requires full disclosure for every real estate sale. Although you are selling real estate on lease options, you should treat this as an outright sale from the beginning. Otherwise, there is a chance the buyer could back out later when you do have to give them the disclosure statement. Additionally, that could provide the buyer with the ability to demand return of the nonrefundable option fee.

It’s also a good idea for the buyer to have a professional inspection of the house done at this time.

Agree on the purchase price of the home. Ideally, the agreed-upon price is slightly more than market value (especially for lease terms of 1 year or more) to compensate for future appreciation and the risk you are taking without an outright sale. You and/or the buyer may want to pay for an appraisal to validate the price. Banks and other lenders will only loan against the appraised value, regardless of the price that you agreed on with the buyer.

Step 5. Execute the lease option contract. Be sure to get the right insurance coverage. Since you will no longer be the owner-occupant of the house, you may need to update your homeowner’s insurance policy to a dwelling policy. Check with your insurance agent to determine what policy is necessary and what coverage you need. Your tenant should also be insured to cover his or her liability and, depending on your state, any gaps in your coverage that may result from the lease option.

Finally, you want to sell the house. You don’t want to become a landlord. Make sure the contract clearly spells out who is responsible for repairs and maintenance of the house. Everything, except the most serious repairs, should be the responsibility of the buyer just as it would be if the purchase had already been completed. That way, you won’t be getting telephone calls about backed up toilets early on a Sunday morning when you’re trying to catch up on your sleep.

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.

Based on decades of experience, I am fully resolved that buying real estate with lease options is the fastest, easiest, and least expensive way of investing in real estate. While it’s not always a simple task finding a lease option seller, finding lease option buyers is quick and very profitable. Fast because it greatly increases your number of potential buyers. Easy because the buyer isn’t immediately looking to qualify for a mortgage or waiting for third party approval. Least expensive for the investor because you take control of the property without the costs of buying it.
Don’t underestimate the importance that buying real estate with lease options brings in the most potential buyers. This is important not only because it enables you to sell for the highest price but it also enables you to mitigate the highest risk a lease option investor faces – finding highly qualified people interested in buying real estate with lease options. Clearly, the larger your pool of buyers, the more likely you are to find several that are on the brink of being able to qualify for a mortgage to finalize the purchase and deliver your largest profit in the deal – the sale.

Buying Real Estate With Sandwich Lease Options

When an investor is involved, buying real estate with sandwich lease options  becomes the preferred method. This creates the win-win-win scenario. The investor enters into a lease option with the seller including a contract clause allowing him or her to assign the agreement to a third party or enter into a completely separate agreement with a third party. Win #1 – For investors, buying real estate with lease options allows him or her to control more properties with less money invested.

Win #2 – The seller begins collecting rent without becoming a landlord and you, as an investor, find the end buyer to collect a larger lease option fee and begin collecting a little more rent than you pay to the original seller. Win #3 – The end buyer (that the investor also does a lease option with) now has a home without the hassles of immediately qualifying for a mortgage along with the ability to complete the purchase in the near future – to deliver the largest payday to the investor.

As the investor, you want to work with the buyer/tenant to remove whatever roadblock is temporarily preventing him or her from completing the purchase. By doing this, for the cost of an option fee, you collect a large profit when the house does go to closing.

Investor Benefits When Buying Real Estate With Lease Options

There many benefits to all involved in lease options. In fact, too many to cover in a single article or blog. Be sure to learn more by reading my other blogs. Here’s a short list of investor benefits that come from buying real estate with lease options:

• A top sales price from the end buyer.
• Positive cash flow.
• The largest list of possible end buyers.
• Minimum risk because you’re not the owner on the title.
• Few or no commissions and fees.
• No maintenance (the end buyer is responsible).
• A large non-refundable option deposit.
• Largest profit when the home sells.

You’re offering a huge value to the tenant/buyer when you have an attractive financing plan. This translates into the ability to ask for a higher selling price (even in a slow market). Any reasonable tenant/buyer easily understands the concept of trading price for time and value.

Once you have the lease option in place with the end buyer, don’t just sit back waiting for them to pull the trigger on the final purchase. You still have skin in the game as the investor. Stay in touch with the buyer to work with them repairing any credit blemishes to qualify for a mortgage. There will be a specific option period this needs to be accomplished within. To make this work, your option period with the seller needs to be longer than the option period you have with the end buyer.

However, you only need to check in with the buyer once a month to verify they are following the plan you helped them put in place. All along, you are making a recurring profit when the rent they are paying to you is more than you are paying to the owner.

Buying real estate with lease options really is the fastest, easiest, and least expensive way for an investor to maximize profits for the least investment and risk.

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.