$***..Lease Option Assignments..***$

[skywalker549]

Hello, Fellow Investors.



I have found a seller who is having problems selling their home. He has little equity. He is interested in doing a Rent-to-Own. I have signed a Option agreement with him with the actual intent to go out and find him a Tenant/Buyer. When i find the right Tenant/Buyer I will have the Seller sign a Direction to Pay. By signing this he agrees to pay me my fee which in the end will be seen on paper as an Option Assignment fee. I will also have the seller open up an escrow account with his lawyer so the Tenant/Buyer can transfer his funds. When i have the Tenant/Buyer sign all the agreements between himself and the seller. The Tenant/Buyer will then transfer his funds into the sellers escrow account. My lawyer will work with the sellers lawyer to make sure i get paid through the Direction To Pay. Basically the Seller buys back my initial option i signed with him at the start this is seen as an assignment of option fee. (not a commission)



Ideally, I would like to take my fee from the Tenant/Buyer not the Seller. But since lenders only like to see funds dispersed through Seller and End Buyer this is not possible. Or is there some other way to have the Tenant/Buyer pay me with-out the Lender raising flags when the T/B goes to qualify?



Please pic this idea apart so i have a decent idea on what road blocks are around the corner.





Happy Investing



Todd



Reach me at: [email protected]

 

[Sherilynn]

In Alberta, if you do not have a "beneficial interest" in the property, you must be licensed to do any of the following:

• Offering, advertising and showing of real estate for purchase or sale;
• Providing property management services; and,
  Solicitation, negotiation or obtaining of a contract or agreement for a trade in real estate.

If you obtain an option for the sole purpose of assigning the option, then one could argue that you are trading in real estate. It doesn't matter if you call it a commission or not.

 

[skywalker549]

Thanks Constable Sherilynn, but i think i will take my chances. I may buy or i may assign that's my business. I have an Option and that Option grants me the right to sell that Option for an "Assignment Fee" An Option is all the Interest i need.



Investors have been making money using options for decades. I am sure there are some Rein members out there that have used an Option all to flip it over to another Investor and make some fast cash. Hmmm... how about all the Rent-to-Own Companies out there that are not Tenant/First but traditional. Perhaps, we better call the Real Estate Police on them.. I know REIN sponsors Ron Le Grand who heavily teaches the use of Options in investing. What is REIN doing sponsoring strategies that are not favored in Alberta?




I appreciate the advice given on this forum but some of the advice does promote much fear. Stuff like "you need more experience" "that is a senior strategy" "Buy 5 properties yourself then think about doing JV's" all your doing is stunting peoples ability to get started by spreading FEAR. Perhaps some of you veterans see it as some kind of ego supplement. Anyways, its sad and it's dis-service to members who choose to be part of REIN.



and Sherilynn as far as i know your cool, but don't call the kettle black when it's grey.



Cheers



Todd

 

[Sherilynn]

You asked for potential road blocks. I simply proposed one.



I have taken Ron LeGrand's course (among others) and I completely understand options. Real estate, like many businesses, has many grey areas. In some cases, intention is the deciding factor.



If you genuinely felt like you were working within the rules then perhaps you wouldn't have such a visceral reaction.

 

[Thomas Beyer]

[quote user=skywalker549]



Please pic this idea apart so i have a decent idea on what road blocks are around the corner.

This works in principle and is a good way to make money IF EXECUTED WELL.



many things can go wrong in this 3-way marriage:

a) T/B can't qualify for a mortgage

b) T/B stops paying his rent/option

c) T/B/ causes damage to property

d) seller changes his mind



Like juggling, playing the piano or flying an airplane, option assignments are easy.

 

[MarkTorgerson]

[quote user=skywalker549]




Please pic this idea apart so i have a decent idea on what road blocks are around the corner.











Sandwich leases are great in the fact that you have little money invested except for some legal fees.

They are fairly straight forward getting them signed, the problem is having them close. There are many moving parts when you don't hold title. If the property doesn't appraise or if the tenant/buyer needs an extension, there is a high likelihood that the deal will collapse.



I suggest you try to pay under market value for your purchase (option) price and that you aren't too aggressive on the sale price (option to tenant/buyer).



You can make some cash up front on the deposit and some profit on the monthly spread, but the end goal is to make sure that you are doing everything you can to assist the tenant/buyer close this property.



I know of a company that had been signing sandwich leases with some level of success. They were boasting a few years ago at a trade show about signing 60 option contracts. I recently talked to them and they have had zero closes. Much of this had to do with market conditions, but also their terms on the close were simply unattainable. Also no credit checks were made and no coaching plan put in effect. If you had the cash, you got the deal. They made out well for a few years collecting deposits for deals that never materialized. Now their reputation is tarnished and they are basically out of business.



With that said, if you act with good intentions and put the deal together properly, there is a likelihood that everyone can win.

 

[skywalker549]

Hi Mark,



I'm not exactly doing a lease option sandwich lease. The RTO company you mentioned likely leases the sellers property along with an option and they likely found out years later the bank does not like to see money transacting to people not on title when it came to the T/B's closing so they drag on the RTO and milk those monthly credits until the deal falls apart. They should be locked up as far as I'm concerned. It's "crap" like this that is getting CMHC to make things more difficult for RTO investors.



I simply sign an option with the seller to buy his property in 60 days.(Warning "Grey" Alert) If i can't buy i assist him in finding a Tenant/Buyer Once found i set up the agreements between seller and end buyer and assign back my initial option to the seller for our already agreed upon assignment fee. I have an RTO program set aside for the seller to familiarize himself with the whole process. I have a Mortgage Broker who will be working with the T/B and a credit repair company to further solidify the T/B's chances to qualify conventionally when their term comes due.



When the seller has his T/B and i have my fee I basically walk out of the deal and leave the Seller with a qualified T/B who will buy his home in 1 - 3 years.



I am basically giving the seller the benefit of doing this themselves as well as reaping most of the benefits an RTO investor would see from a deal that is done up correctly and ethically.





Thanks Mark

Thanks for all the replies everyone



Cheers



Todd