A cooperative lease option involves flipping or wholesaling lease options for quick cash. Your biggest role as an investor is marketing. Marketing to find both sellers and tenant/buyers. Your other big role is having the knowledge to explain how lease options work smoothly for the sellers and tenant/buyers in a way that makes them very comfortable.
You begin by explaining to the seller that you are thoroughly knowledgeable about lease options.
Marketing Cooperative Lease Options
Sellers need to understand that you know exactly what types of tenants are going to become buyers by completing the deal. You know how to qualify them so they will obtain a mortgage in 18 or 24 months. You will work with tenants and provide resources so that they become motivated to complete the purchase.
Still, there cannot be an absolute guarantee that a tenant will complete the purchase. An unforeseen event might come along like a job transfer to another city with a promotion that is more valuable than the non-refundable lease option fee. But the good news is that there will always be another tenant/buyer ready to enter into a cooperative lease option. Importantly, the seller is going to be collecting rent and building equity every single month – that is a guarantee that I am willing to make.
Being confident that you have highly qualified tenant/buyers is critical to your marketing strategy. The number one marketing method for both sandwich lease options and cooperative lease options is building a list of referrals and testimonials.
Happy sellers and happy buyers give testimonials that you share others and these are the people that spread your word of mouth marketing to family, friends, and associates.
Your marketing focuses primarily on finding sellers because there will be more tenant/buyers than houses that you have to offer. Because there are more tenant/buyers, you cherry-pick the best that you are confident will complete the deal. It’s a nice clean marketing circle where each of your efforts supports all of your needs. Putting a ribbon on this neat package is that the best tenant/buyers are also the ones most capable of delivering the largest option fee, which also works financially well for you and highly motivates the tenant to become a buyer.
Cooperative Lease Paperwork Made Easy
The cooperative lease option paperwork is the only paperwork you need to put in place with the seller to begin marketing the property to tenant/buyers. This is the paperwork that lays out the terms of the transaction. It explains that, as an investor, you will not be renting the house. It explains that you will find someone to rent the house with the intention of purchasing it. You will help the tenant/buyer towards qualifying for a mortgage. The final paperwork will have a date when the tenant/buyer is expected to complete the purchase but you don’t know that date upfront. That date can be sooner than the date on the final paperwork but not later.
The cooperative lease option also explains that you need some cooperation from the seller to market and show the house. What you don’t want to do is get too hung up with the details of the entire lease option paperwork too early in the process. This is going to be a Win-Win-Win for everyone involved but some details cannot be completed until after the tenant/buyer is found. However, in some states, you do need a sales contract with the seller.
It’s important that you know how to qualify the best of the buyers that flock to your advertisements.
Finding Tenant/Buyers is the Easy Part
Tenant/buyers flock to simple bandit signs and Craigslist adverts. It can be as easy as a grocery store or laundromat notice on a bulletin board in the neighborhood of the house. But first, a word of caution before you begin looking for tenant/buyers. One mistake you don’t want to make with sellers is taking on a weird house that most buyers are not going to want. You need to avoid peculiar houses such as a 1 bedroom with 1 bath and houses needing major repairs. The houses that tenant/buyers want have white-picket fences and are priced near the median value in the neighborhood.
When you are first getting started with cooperative lease options, try not to be desperate for your first paycheck. At least not to the point that you don’t properly screen the tenants. You’re not just screening for rental tenants. You’re screening for tenant/buyers that are highly likely to complete the purchase. This is important to your total lease option business strategy. If the best tenant/buyer doesn’t appear the first day you start marketing don’t fret; the right buyer is no more than a week or two away.
As your cash flow increases, you’ll quickly learn to cherry-pick only the best tenant/buyers.
Cooperative Leases Require a Solid Paper Trail
The key to a reliable paper trail is using escrow accounts. Don’t fall into a trap of accepting cash payments for the lease option fees that will need to be documented by the mortgage lender 18 or 24 months from now. That is when the option fee is credited to the down payment. It can be difficult explaining to a mortgage officer ready to make a $140,000 loan that a down payment was made more than a year ago and they need to take your word for it.
The paperwork is one of the most valuable resources that come with the courses.
The right paperwork makes the entire purchase process easy to complete 18 or 24 months after the cooperative lease option was first signed. You need to have the mortgage application and closing processes in mind when you originally create the paper trail. The option fee will be well seasoned and the source of the funds will be clear to the lender when the funds are first entered into an escrow account at the beginning of the transaction. Remember, this is creative real estate investing, being able to follow the money is critical.
You are going to be paid quickly even when you place the money in escrow. The lease option fee is non-refundable. Although it is deposited into an escrow account, as soon as all of the initial paperwork is signed, the money can be distributed. With a cooperative lease option, you are paid as soon as the deal is in place and the paperwork is signed. How fast will you be paid?
It’s possible to sign the paperwork and deposit the money into escrow in the morning and for you to have your money in the afternoon.
The Cooperative Lease Option is Only the Beginning
You’ll probably start with cooperative lease options and then move onto sandwich lease options. But there will be future deals that make more sense as cooperative lease options, so you always want this tool in your toolbox. The key difference with a cooperative lease option is that once all of the paperwork is in place, you step out of the deal. There is less money made in cooperative lease options but the plus side is you don’t remain a principal in the transaction for the next 18 or 24 months. The money you don’t collect is the rent spread and the higher sales price than you pay to the seller in a sandwich lease option.
The additional paydays are why most investors step up to the sandwich lease option after completing a few cooperative lease options. Cooperative lease options do make a good point of entry for lease option investors. Something else you want to know is that cooperative lease options work well with investor-friendly real estate agents. Agents can collect part of their commission at the beginning of the transaction and the remainder at the closing table. Once an agent understands how this works, they start bringing cooperative lease options to you!
The cooperative lease option allows you to collect the original lease option fee and then legally and financially step out of the remainder of the transaction.
Begin by taking immediate action:
- Cooperative Lease Options.
- Investing In Real Estate with Lease Options.
- Advanced strategies for Buying and Selling with Lease Options.
- Your Wealth Building Arsenal.
- Add Personalized Coaching.
- Expand to Get the Deed “Subject To.”
- 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.
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