Month: June 2020

Most real estate investors know that you make your profit on the buy-side of the investment deal. When it comes to buying real estate with lease options that means your profit is based on your negotiations with the seller. I strongly believe that the entire sandwich lease option deal is a win-win-win for the seller, the investor, and the buyer. However, as the investor, you negotiate separately with the seller and the buyer. So, when I refer to this as a win-win it means you are only negotiating with the seller.

The full win-win-win is complete when you also have a deal with the seller.

Today’s blog picks up where the last blog left off (Expert Tips and Secrets About the Paperwork). That’s where I was sharing about how to put together an Option Memorandum and why you want to offer choices to your seller with different ways the deal can be put together.

Sellers Like Having Choices

We already know that real estate investing is about creativity and flexibility. Buying real estate with lease options certainly fits the bill. However, sellers are less sophisticated about creative options. For most sellers in traditional deals, the process is straightforward. All they need to do is hire an agent, show the house, and come to the closing table to collect their check. The truth is that sandwich lease options aren’t much more complicated for the seller but the creativity of the deal can cause them to have some skepticism. Fortunately, offering several choices to the seller about how the deal can be structured is an excellent way to overcome any skepticism by building confidence that the seller has full control over the deal.

Choices build seller confidence about having control of the sale.

The number of choices you can offer the seller is almost infinite when you consider the dollar values can easily be moved to fit individual situations. Still, you need to make a profit, which means the seller can’t just write the paperwork any way they want to. Even though you are giving multiple choices to the seller, you must know what your goal is from the beginning and what is important to you. This means you have already determined how much profit you will ultimately make.

Most of the flexibility involves how much the seller will be paid in each of the three phases of the process – 1. Option fee, 2. Monthly rent, 3. At closing. It’s between these phases where you can often move the money around easily to satisfy the seller. The option fee provides the seller with the money they need immediately. The monthly rent covers their mortgage payment and can give them some extra income for a year or two. In the end, most of the money usually comes at the closing table. The flexibility (seller’s choice) is how much of the total goes in each of the three buckets.

Always calculate your profit all of the way through the deal.

Three Choices for Buying Real Estate with Lease Options

Because there is so much flexibility, there is no way to show every possibility. However, here are three ways of looking at the most common possibilities.

1. You can give a larger option fee to the seller upfront and pay less to the seller at the closing table.
2. You can agree to a larger purchase price but pay little or no upfront option fee.
3. You take a middle road (most common) with a modest option fee that takes care of the seller’s immediate needs but reserves the bulk of the payment for the closing table.

Don’t get hung up thinking these are the only choices when buying real estate with lease options. Among other creative solutions are rent credits, paying higher rent in exchange for a lower sales price, repairs/maintenance, and many other variations.

Creativity….

More Creative Solutions for Buying Real Estate with Lease Options

There are very good reasons why you want to offer the seller multiple choices from the beginning when buying real estate with lease options. What creates value for you is that multiple choices help you understand what is really important to the seller. That way, you can address their pain and that increases your credibility with the seller – more trust.

Not only is the seller more likely to go through with the deal but they are also likely to reciprocate by giving you more of what you want – more profit. Usually, they want money now and will sell for less to get it. Providing choices and flexibility is also great for not needing a confrontational negotiation style. But one word of caution; don’t push for an instant decision from the seller. Being pushy can make the choices seem like a shell game where you are trying to slip something past them. Give them a day or two to look over the choices before getting back to you.

Having a few deals under your belt (and money in the bank) enables even more flexibility, which the seller might find appealing. By this time, you probably have a list of buyers and know exactly which two or three buyers will jump at a particular lease option deal. With money in your bank account, you can confidently offer to write the seller a check for $2,500 on the spot in exchange for some of the other numbers working favorably for you. This is a variation because it’s not usually recommended that the seller be paid until you have the other half of the sandwich lease option with the tenant/buyer.

Another version can happen if the seller is currently living in the house. You can offer to give them the option fee the day they move out and hand you the keys. Even if you don’t have a buyer’s list, you’ll have two or three weeks to find a tenant/buyer before the seller vacates the house. The option fee won’t come out of your pocket.

Don’t forget how powerful rent credits can be. During the entire lease period, you are paying the full rent to the seller every month. The seller may find that extra income very helpful. However, at the closing table, all of those credits come back to you. And the seller is still happy because he/she is getting another big check at the same time. Rent credits can substantially add to your total profit from the deal.

When buying real estate with lease options, the benefits of creativity, flexibility, and non-confrontational negotiating are extraordinary. It gives the seller a sense of regaining control at a time when they feel they have no control over their finances. They may want to move the numbers around a little differently but that is okay with you because that is what a win-win outcome is all about! When you can offer them what works best for them, they will recommend you to their friends and family. Everyone walks away happy!

You Never Have to Be Confrontational When Negotiating Buying Real Estate with Lease Options

1. Investing In Real Estate With Lease Options.
2. Advanced strategies for Buying and Selling with Lease Options.
3. You’re Wealth Building Arsenal.
4. Add Personalized Coaching.
5. Cooperative Lease Options.
6. Expand to Get the Deed “Subject To.”
7. Round it all out by Working with Realtors.

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.

(Expert Tips and Secrets About the Paperwork)

I’m a huge believer in the sandwich lease to purchase investment method. I’m just as adamant about writing the lease option forms and contracts in an ethical and straightforward manner. Even if you’re working on your first sandwich lease option deal, you have much more knowledge and information about the process than the typical seller or tenant/buyer. After all, you’ve thoroughly studied the subject but this is most likely a new and creative opportunity for the seller and first-time buyer.

You enhance your reputation, your business’s reputation, and the integrity of each deal when you make sure the seller and buyer fully understand the legal structure of the deal and the obligations of all parties to the lease option and contracts. A good way of firmly impressing this on buyers is by starting each contract with a statement similar to:

This is a legally binding document. If you desire legal or tax advice regarding this Lease Agreement with Option for Purchase, including all addenda, and attached exhibits (collectively referred to below as this “Contract”), you are advised to consult with your attorney or tax adviser prior to signing this Contract.

An Easy to Understand Proposal Gets Your Profits Rolling!

Your Proposal to the Seller

It all begins with my proven script to generate the initial interest in the benefits that you offer. The conversation begins as if you are a traditional buyer (or you disclose you are a realtor). Once you have their attention, you can offer them a creative proposal.

• Your goal is getting the seller on the same page as you without creating confusion with a bunch of legal lease option forms and contracts.
• Keep the proposal easy to understand with highlights, not technical terms.
• Some sellers are comfortable just talking about the proposal without having it in writing – not a problem.
  • It might help to have a conversation in person rather than over the phone.
  • Emailing the proposal is also a good option.

The Lease Option is a New Concept for Sellers

Memorandum of Lease Option

This is where the formal lease option forms and contracts begin and negotiations are typically still part of the process. You want to negotiate with integrity. You’re looking for a win-win with the seller. This is not about the seller losing as much as possible and you winning everything.

Here are the basics to the memorandum for a lease option:

• All sellers listed on the title or deed must sign it.
• It has to be notarized.
• You can record it in public records.
  • Recording the paperwork clouds the seller’s title (encumbers the title).
• You want the authority to check the mortgage payment status at any time.
• You need an Affidavit Regarding Lien – unknown debt (may have different names in different states).
• Other standard forms:
  • Seller disclosure (or similar name in other states).
  • Lead-based paint (HUD website).
  • Anything else required by your state.

This is part of your due diligence but not all of it. By the time you are finalizing the option agreement contract (but before signing), you need to complete all of your due diligence.

Negotiations

The seller is going to want to read the paperwork and maybe have an attorney review it before signing. That means negotiations and clarification are probably going to continue until the lease option forms and contracts are signed. Here are some basic guidelines for negotiating sandwich lease options and forms with the seller:

• Know what your goal is from the beginning and what is important to you.
• Remember, you are looking for a win-win. It’s not about the seller losing and you winning everything.
• You are not guaranteeing that the mortgage will be paid off (that is why it is an option).
• You are taking over the payments and the maintenance (during the lease option). You pass these responsibilities on to the tenant/buyer in the second set of paperwork.
• Be prepared to begin making the payment as soon as you have a tenant in place (but preferably not before). But, be prepared to continue making the payments if the tenant vacates the house. With correctly written sandwich lease forms and contracts, you can quickly put another tenant in the house if needed.
• It can be a good idea to let the seller know an estimate of when the buyer might qualify for a mortgage (complete the purchase) but you can’t know this until you have a tenant in the house.
• Before writing the lease option forms and contracts, be sure you know your state and local legal requirements.

Negotiate with Integrity – don’t promise what you can’t deliver.

You might present two or three different versions of the option memorandum (but finalize only one). However, you should have most of it narrowed down during the proposal phase. Still, it’s not uncommon to have a few final details that need to be ironed out in the legal memorandum. A good reason for offering different versions is to demonstrate that lease option purchases can be both creative and flexible. You might try different lengths of the option period. Or you can try different option fee amounts with different monthly rent amounts. You can also try something even more creative. When a seller shows more interest in one version than another, it helps you understand what is important to the seller. These variations and many others (with details and examples) are all in the comprehensive course material.

1. Investing In Real Estate With Lease Options.
2. Advanced strategies for Buying and Selling with Lease Options.
3. You’re Wealth Building Arsenal.
4. Add Personalized Coaching.
5. Cooperative Lease Options.
6. Expand to Get the Deed “Subject To.”
7. Round it all out by Working with Realtors.

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.

Pay attention here! Not only are sandwich lease options highly profitable but they are completely legal and available investments tax-free and tax-deferred.

Many people incorrectly assume the only thing a retirement IRA can invest in is SEC approved securities. There is nothing further from the truth. Although 95% of IRAs are only invested in stocks and bonds, the main reason is that the average investor sets up their IRA through a financial planner or stock trading company. The only investments these companies allow are securities and maybe some gold. It is the investment company limiting your options, not the IRS or any law.

The IRS treats a retirement account owning real estate or lease options contracts exactly the same as a retirement account owning stocks, bonds, and gold!

I touched on this briefly in the blog “Baby Boomers, Stock Markets, Coronavirus, and Sandwich Lease Options.” Here I go into more detail.

Many People Invest Their IRAs in Real Estate and Lease Options

All-cash buyers are always the hottest buyers in the real estate market. One of the biggest reasons sellers offer a property at a deep discount is because they need the cash NOW. With cash, you can close a deal in two or three days when the seller needs cash NOW. Without cash, you need approval from a lender and have to fill out large amounts of paperwork that take weeks and weeks to process. If the seller is lucky, he or she might get the cash they desperately need about 45 days from now.

This is where a self-directed IRA that owns an LLC becomes highly attractive. With you as the trustee of the IRA, you have “Checkbook Control” of your IRA. When you find that deeply discounted property that needs to close the day after tomorrow, all you need to do is show up with a certified check drawn on your IRA or LLC account. No approval, no custodians, no fees. Just you and your self-directed IRA account.

You Have Multiple Retirement Account Choices Available to Control Lease Options

The Three Main Self-Directed Retirement Accounts

Self-directed retirement accounts have been used for decades and decades and decades by millions of people (usually wealthy people). They have been tested by the IRS in multiple court cases. Self-directed retirement accounts are so well established that the IRS has issued “Safe Harbor Rules” about how to best structure the accounts to avoid scrutiny by the IRS. There are many variations to these accounts but here are three of the most common:

Custodian controlled self-directed IRA. This is almost completely the same as any other Individual Retirement Arrangement (commonly called an individual retirement account). These insert a third party “custodian” into the transactions. One purpose of the custodian is to guard against you making investments that the IRS might question. This slows down those important fast-cash investments. This is why many investors prefer a Checkbook IRA that does not involve a custodian.

Checkbook IRA without a custodian. This is a version that has become popular over the past couple of decades because it gives you (the investor) full control over your IRA funds. It takes the custodian out of the picture. The general structure is for your IRA to establish and take full ownership of an LLC. The IRA gives directions to the LLC to make specific investments. As the trustee of your IRA, you are the person giving directions for the LLC investments. You sign the checks for both the IRA and the LLC. No custodian required. You simply research lease options and sign the check as soon as you make your investment decision.

Solo 401k for higher contributions and more benefits. A Solo 401k works exactly the same as an employer-sponsored 401k retirement account. The biggest difference is that you are the employer. You set up your own business (typically an LLC) and then you set up a standard 401k retirement account within the business that you own. The big advantage here is that you contribute to your retirement account in two different ways. First, you contribute part of your income to the 401k in the same way that you contribute to any employer-sponsored 401k. Second (and importantly), the business (that you own) adds the matching contribution. As the business owner, you decide how much the matching contribution is. This allows you to contribute much more to your retirement account each year. With more money in your tax-deferred retirement account, you follow the same process that an IRA uses to invest in lease options or any investment that you want to make. It’s important that you understand some rules controlling a Solo 401k. Important is that the business setting up a Solo 401k can only have one employee (you). However, there are ways it can be structured to include a spouse and a partner as employees.

This is how wealthy people use the IRS code to accumulate and preserve wealth. Many variations are available to custom-fit individual circumstances

The ROTH variation. Among the many variations available to each of these self-directed accounts are before-tax and after-tax contributions. The before-tax version allows you to contribute to your retirement account before taxes are withheld. That reduces the taxes you pay on your income each year. This is known as “deferred taxes” because you will have to pay taxes as you withdraw the money in your retirement years – when you expect to be in a lower tax bracket. The ROTH version makes contributions after you pay taxes on yearly income. However, there are no taxes due when you withdraw the money during retirement. What makes the ROTH version popular is that you do not pay taxes on all of the earnings that flow into your retirement account over the years. Not even when you withdraw the money during retirement. The ROTH version is known as “tax-free.” Many lease option investors prefer the ROTH IRA in anticipation of huge tax-free earnings that will be available in retirement.

Rollover and contribution variations. Something important to know is that if you want to get started immediately with tax-free and tax-deferred investing, you can rollover the funds from existing IRA and 401k accounts. If you have a current IRA with an investment fund that limits your choices to stocks and bonds, you can roll those funds over to a business that specializes in self-directed retirement accounts. These businesses offer several versions (including customized versions) of both self-directed IRA accounts and Solo 401k accounts. The contribution limits placed on IRAs and Solo 401ks also need to be understood when making this decision. For the tax year 2020, the maximum allowable Solo 401k contribution is $63,500 (includes over age 55 catchup contribution). You can double that maximum to $127,000 if a spouse is part of the Solo 401k plan. Also, this contribution limit does not include any money you rollover from an existing retirement account. A Solo 401k offers substantially higher contributions limits compared to an IRA, which for the tax year 2020 is capped at $7,000 if you’re age 50 or older.

Something else you might want to be aware of is that you can always invest in lease options with other funds outside of your retirement account. Earnings from these other investments are taxed but you don’t have to wait until retirement to spend your earnings.

Tax Sheltered deals are very attractive but you can also earn money outside of your retirement account. You can do BOTH!

Benefits of Investing in Real Estate with Self-Directed Accounts

Investing in lease options with retirement accounts have a lot more benefits than can be covered in this short article. A few others include:

1. The deferred taxes retained in your account significantly add to your compounding investment power.
2. You can borrow money from your Solo 401k and then pay the interest back into your retirement account.
3. Maximizing your retirement account contribution also maximizes the annual tax reduction on your IRS 1040 form.
4. Retirement accounts offer additional asset protection beyond an LLC.
5. There are many other versions of tax-free and tax-deferred accounts that can invest in lease options and real estate. Others include funding higher education for yourself or your children, health expense accounts, as well as wealth-preservation, and generational wealth-building strategies.

Real estate investing has made more people wealthy than any other investing method. Using retirement accounts to fund lease options and sandwich lease options is among the most powerful ways for people who are either already investing or just getting started. Becoming knowledgeable about what you should be doing now is the most important Action You Can Take.

1. Investing In Real Estate with Lease Options.
2. Advanced strategies for Buying and Selling with Lease Options.
3. Your Wealth Building Arsenal.
4. Add Personalized Coaching.
5. Cooperative Lease Options.
6. Expand to Get the Deed “Subject To.”
7. Round it all out by Working with Realtors.

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.

Working with realtors on lease options provides tremendous opportunities to develop a long list of strong leads of motivated sellers needing to generate cash flow when their house is slow to sell. Just for starts, I’m confident saying that realtors have access to between 80% and 90% of all residential listings through the MLS.

Lease Options are Highly Creative Real Estate Investing Strategies for Win-Win-Win-Win Outcomes!

Why Realtors Will Work With You on Lease Options

Craigslist, PennySavers, local newspapers, and similar sources for leads are great and absolutely deliver results. But without realtors, you are limiting your potential market to about 10% or 20% of the total out there. Working with realtors on lease options is key to opening up your full market.

But you probably instinctively think that realtors won’t want to work with you because they only make a commission when the house sells. And in a realtor’s world, that is true. But lease options are all about creativity and flexibility. One of your first steps to getting started working with realtors on lease options is demonstrating how that creatively and flexibility can work in their favor. After all, the whole point of lease options is for the tenant/buyer to purchase the home – just not right away. There are many opportunities to work with realtors and one of the ripest times is when a realtor hears from a seller the dreaded words:

“If you don’t sell my house in the next week, I’ll have to rent it out!”

When he or she hears those words, without your help the realtor is almost certain to get nothing or almost nothing despite having put a lot of work in the listing. On the other hand, when you are working with realtors on lease options, the realtor can still earn the listing commission and might even be able to increase that to include part of the selling commission.

You will make the realtor very happy. You will get the seller out of a bad situation. You will make a tenant/buyer happy. You will be very happy. Now, you’ve created a 4-way win-win-win-win result. Over time, that realtor might bring you 50 or 100 deals.

Work With Realtors Specializing in Listing Properties

You can work with any realtor but it makes the most sense to work with realtors that specialize in listing houses for sale. That’s because sandwich lease investors typically put the most effort into finding motivated sellers. But if you do need to quickly find a tenant/buyer, realtors that specialize in working with buyers always have a few buyers that are having trouble qualifying for a mortgage.

Ultimately, working with realtors on lease options supports both sides of your sandwich lease option business!

A benefit that you provide to listing realtors is that they don’t have to immediately take the listing off the sales market. They can continue marketing the house until you find a tenant/buyer for the sandwich lease option. But as full disclosure to the listing realtor, you should let them know this usually only takes two or four days, a week at the most – the seller did say they had to put a renter in if it didn’t sell in the next week.

By working with realtors on lease options, you can help a lot of people but you can’t help every single distressed seller. Here is what you do and do not want to pursue in the MLS when working with realtors:

• Do not pursue short sales (nothing upside down or underwater).
• Do not pursue bank-owned properties (REO).
• Say “yes” to properties on the market for 90 days.
• Look for properties on the market for more than 90 days (especially over 180 days).
• Know your median price point to work in the most active market.
• Generally, avoid neighborhoods that are dominantly renter neighborhoods (you want owner-occupied neighborhoods).
• You prefer vacant houses but an occupied house is not a deal-breaker (the owner would need to move upon sale anyway).
• Know what is going on with HOAs. You need to know how tenants are qualified and if they are allowed (realtors can screen this for you).
• Be open to other possibilities that realtors suggest.

How to Get Realtors Offering You Their Listings

Begin with an understanding that many realtors are reluctant to work with investors because realtors have a perception that investors will look at hundreds of properties but only make low-ball offers once in a blue moon. Very fortunately, that is NOT what working with realtors on lease options is about at all. What this is all about is everyone in the deal coming out a winner.

You only need to take a few actions to get the word out about what you offer realtors using lease options. The first thing you do is organize the benefits for realtors into a short and condensed set of bullet points. Right away, you want to tell them what is in it for them. You don’t want to get off into the weeds with a bunch of contract details in the beginning – that will come over time and based on specific circumstances.

Generally, you need both a short PowerPoint presentation and a telephone script. Both contain the same information but are used for different communication methods. Here are your options for sharing the win-win lease option proposal:

• A PowerPoint presentation to an office of realtors if you’re comfortable talking to a crowd. Keep the presentation to 10 or 15 minutes with additional time for Q&A.
• Same PowerPoint presentation on a laptop that you can share with individual realtors over a cup of coffee.
• A short script that you share in a telephone conversation. Have an even shorter version to leave as a recorded message.
• Your shortest script can be used as an “elevator speech” whenever you bump into a realtor at an investor meeting, open house, hardware store, or anywhere else.
• Have your laptop PowerPoint presentation ready when you visit open houses that have a lull in visitors.
• Your script or presentation can be used anywhere and anytime you engage with realtors.

Your Next Level of Success Begins With a Short, Well Prepare Script and Presentation for Realtors!

Through my blogs, articles, webpage, YouTube, Facebook, and other sources, I’ll keep sharing the tips and techniques you need towards your success with lease options. Better yet, for your full education, go through it all step-by-step by clicking the links below:

1. Investing In Real Estate with Lease Options.
2. Advanced strategies for Buying and Selling with Lease Options.
3. Your Wealth Building Arsenal.
4. Add Personalized Coaching.
5. Cooperative Lease Options.
6. Expand to Get the Deed “Subject To.”
7. Round it all out by Working with Realtors.

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.