Volume 2, Number 6
Seattle Investors Club
Meeting Date: Sat 6/14/14
Topic: Using Lease Options to Control, Acquire, Flip and Sell Houses
Part 1 of 2
Presenter: Mike Sumsky
Location: Shoreline Conference Center, 18560 1st Ave NE, Seattle 98155
Enter thru southwest door of building. http://www.shorelinecenter.com/
Welcome to THE ‘AL’ REPORT. My name’s AL — Here’s my report.
Another new record of 50 people attended! What a WIN! GONG!!! We may have to start wearing name tags there’s so many of us now.
* 4pm Mingling, and vital business networking
* 4:40pm Joe began with ‘Needs and Wants’. This time Joe asked for any volunteers to save time, since it would take an hour to go around the room to everyone. Some shared what they ‘need or want’ with the idea that a solution matches a need. Items usually include needing an investor friendly lawyer, contractor, private funds, a project manager, more deals to rehab, buyers for wholesale deals. Some ‘matches’ were the law firm of Pucket and Redford, sources of private funds were mentioned, there were several contractors in the room.
A guest gong ringer manned the WINS gong. Nice job Mr. Peacock. In the words of Than Merrill, CEO and founder of FortuneBuilders, “…we believe in ‘celebrating all wins’…” So AL got for the club a ‘Celebrate All Wins!’ gong. We encourage anyone sharing a ‘WIN’, any WIN, to ring the gong to celebrate! Many ‘WINS’ were shared and the gong rang to each of them. Come share a WIN in your life or business and ring the gong! Be sure to post your WINS and view others’ at www.fbwins.com. More are added daily.
* 5pm Presentation: – Lease Options Part 1 and how you can make money doing them.
Mike brought a multi-page handout with printed slides and much more detail about this topic. This report is a summary.
NOTE: Mike will be returning for the August 16thmeeting to present part 2. That’s August 16th
Second NOTE: There IS a July 19th Meeting, just not with Mike. Come one, come all!
Mike has done some 121 deals in the past nine years. That’s over one a month! So, what IS a ‘lease option’? “It’s a great way to sell a house”, says Mike. It is an arrangement between a Landlord/Optionor (owner) and a Tenant/Optionee (tenant-buyer). The tenant-buyer leases a home and has the exclusive option to buy it at a future time at a pre-determined price. These are also known as ‘lease options’, ‘rent to own’, or ‘lease purchase option’. It is an alternative for buyers who otherwise could not our choose not to purchase the conventional way.
Example: Tenant-buyer pays $7500 non-refundable ‘option fee’ to seller in order to have the right to buy the home anytime in the next three years for $250,000. Tenant-buyer pays seller $1700 a month and earns $300 a month towards the purchase for each on time payment.
Solution. Many people want to buy a house but do not qualify for a mortgage. Many people want to sell their house but cannot afford the selling costs in a conventional sale. This is a tool investors can use to solve this problem for others.
Advantages. There are tax advantages, several ‘pay days’…at the beginning, cash flow each month, and at time of ultimate sale. It’s better cash flow than renting. It attracts better quality tenants than renting does, since they see the house as their house, not the landlord’s. There are higher profits when selling.
Paperwork. There are two parts to this. One is a lease. The other is an option to purchase agreement. These two parts must be separate to avoid legal problems in the event of default. (If they are not separate, the tenant can belegally deemed a part owner and might require a lengthy and expensive procedure (foreclosure) to remove tenant/buyer from the house. Notarizing the lease is always a good idea, even though in Washington it is only required to be notarized if the lease is for 12 months or more.
If we can sell with a lease/purchase, we can also CONTROL/BUY a property with a lease purchase. However, we always buy low and we sell high.
Sandwich Lease Option. If you can place yourself in the middle of a deal, buying from a seller and leasing or subletting to an end buyer with the same basic technique, you can effectively control a property with no money of your own, and earn a ‘spread’ or profit with the difference between how you buy and how you sell the same property.
Example: A house is worth $250,000. You negotiate with a seller for a 4-year option period to purchase it at $200,000. You pay zero down, $1200 a month, $300 a month rent credit toward down payment. Then you sublet the house to an end buyer for $250,000 with a $5000 option fee from the buyer to you, and $1500 a month rent with $300 a month rent credit toward a down payment. (For more expensive houses, the option fee is higher but the same idea works.) Here’s the math… 225k – 200k = 25k profit. $5000 option fee to you – $0 option fee from you = $5000 profit. $1500 – $1200 = $300 a month cash flow to you.
If you can only negotiate a low upfront option consideration, you can assign your option to a tenant-buyer for a fee and be out of the deal completely.
If a seller is behind in payments, this may trigger the Distressed Homeowner Act. Mike thinks that the ‘act’ does not apply to non-owner-occupied properties but it would be a good idea to get advice on this from an attorney.
- Your Seattle Investors Club is growing! From our humble beginnings over a year ago by local FortuneBuilders Mastery students, our group has grown in numbers, experience and expertise. We gladly include other like-minded folks interested in learning/doing what we do. You do NOT need to be a ‘mastery’ student to attend. These are not sales meetings — nobody tries to get you to join anything…except maybe their buyers list. (Put me on yours!) The meetings are networking and learning events where we share, ask questions, team up, make deals happen, learn, etc. Invite others and come join us!
- JULY 19th is the next meeting. Meetings are usually the first Saturday of the month, 4pm to 6pm, unless otherwise announced. Watch for Joe’s emails. Due to the holiday JULY 19th is the next meeting. Other news is posted on our exclusive Seattle Investors Club Facebook page.
- JULY 19th is the next meeting
- Do you have ideas for a meeting topic or format? Please contact Julie ([email protected]) or Joe ([email protected]). Perhaps you know an expert to invite. Perhaps you ARE an expert! We solicit suggestions.
Many thanks to Joe and Julie for their continued efforts setting these up.
And thanks to everyone! We look forward to knowing and working with you!
Disclaimer: Though every effort is made to report accurately, the inadvertent error may occur. Feel free to let me know if you see any goofs. Thank you. AF [email protected]