Wholesaling Lease Options
What Are Wholesaling / Cooperative Lease Options?
Let me first tell you a little bit about my background. A few years ago, I was buying a lot of homes with traditional bank financing. When the banks started telling me that I couldn’t buy anymore homes, I started buying homes “subject-to” the existing mortgage. Pretty soon, I owned about 12 homes within 12 months. (And I was selling all these homes on Lease Options.)
Yes, I owned 12 homes. I thought I was a successful real estate investor! But I was equity rich and cash poor. I had lots of equity. (Actually, I thought I had lots of equity… but then the market crashed! Can anyone relate?) When you are only making $100 – $200 per month cash flow on each house, that money quickly disappears in vacancies and repairs. All of the sudden, I had a serious cash flow problem.
I realized that I needed to fix my cash flow problem – and fix it quick. That’s when I started wholesaling houses. So then I started spending thousands and thousands of dollars on marketing – direct mail, Google adwords, websites, signs, etc. I was getting a lot of leads, and I was starting to make some good money!
But then I started getting very frustrated because I was spending so much money on marketing and throwing away so many leads from sellers who were not motivated! Maybe they didn’t have enough equity. Maybe they did have enough equity, but they weren’t willing to share any of it with me! A lot of my leads weren’t behind on payments. There was nothing I could do to help them, and I was getting really frustrated!
So here I was – I loved buying properties and I was really good at selling them on lease options, but I had a serious cash flow problem. And then I loved the cash flow that traditional wholesaling was giving me, but I was frustrated with the amount of time and money I was putting in marketing for wholesale deals with relatively little to show for it. That’s when it hit me…
Why not Wholesale “Lease Options”?! (Or do a “Cooperative Lease Option”?)
Let’s look at some facts…
1) There are TONS of sellers out there who can’t sell their home. They either have very little equity or they aren’t willing to discount their home to 70% of ARV to compete with the banks.
2) There are TONS of buyers out there who can’t buy a house.
So I thought to myself, why not stop throwing away all those leads and do something with them? Why can’t I put “Lease Options” and “Wholesaling” together and make the same money with them as I was making with regular wholesaling?!
So, let me give you the quick and dirty low down of what Wholesaling Lease Options are. Here are the basic steps:
1) Find a motivated seller who wants to sell their house on a Lease Option
2) Get the property under an “Option To Lease Option” contract
3) Find a qualified tenant-buyer who has a good down payment and has a good chance to get a mortgage in 6-12 months
4) Sign the Lease Option paperwork with the Tenant-Buyer
5) Assign the Lease Option docs back to the seller.
6) Keep the Option Consideration / Deposit and give the Seller the first month’s rent
7) Put the Tenant-Buyer in a credit repair program with your mortgage broker.
Deposit your money & move on to the deal!
Real simple… really! That’s why I love this business so much. Almost anyone can easily do 1-2 of these deals a month. Imagine what you could do with an extra $3,000 – $10,000 in “Hip Pocket National Bank” every month!
And if I can do it – anyone can!!!
Joe
Very much enjoyed your presentation at the Street REIA. I too appreciated the value of Lifeonaire and previous short sale boot camps.
One question I have is how you handle the HUD’s when the time comes for the Tenant Buyer to exercise the LO. He’s paid you the 3% lease option fee, but still wants credit for this consideration at closing. Do you unwittingly create a chain of title problem under this process?
Would appreciate your thoughts on this matter. Thanks!
Barry
Hey Barry! Never had a problem with the chain of title. The 3% they put down up front is their down payment when they exercise their option to buy the house. You have to be sure you have a copy of the cashiers check when they first put that money down. You have to show that check to the underwriter. They main thing is to have a mortgage broker on your team who understands lease options & getting financing for these buyers. He will know how to prep the underwriters on what we are actually doing. You’ve got to have an investor friendly mortgage broker on your team who has done lease options before. Does that help?
Joe -
I haven’t purchased your course….yet – but I’m curious, what do you tell the sellers is plan B if the TB doesn’t follow through and purchase the home?
Do they come back to you to fill it again?
How do you structure the LO time frame – 12 or 24 months or more and why?
Thanks for the input!
Hey Jeff! Great questions. I tell them that if the TB doesn’t work out, we can help them find another one. Yes, I have had several sellers come back and ask for my help again. Sometimes if they had a really bad experience with the previous TB, I will find them another one and only ask for $500 to cover my marketing expenses. They can keep the rest of the option deposit next time. They appreciate that.
I usually do 2 years. Sometimes 1. It depends on what the seller is willing to do.
Jeff, check out the forum for Q&A’s if you haven’t already. – Thanks! Joe
This sounds a little different then your typical Wholesale. Sounds pretty cool.
Joe,
Nice call w/ Wendy Patton. Joe, I work full time and finally closing first deal but no pipeline of sellers. How can I put my lead generation on autopilot. I need seller leads.
Mike
outsource all your marketing to VA’s!!!!!!!
Hi Joe.
My name is Anders, and I can’t wait to do our first deal.
I have a question, my partner and I bought wendy coaching. On the letter you send to the sellers, you have said you attach the Option Agreement. Is it the “Cooperative Lease Option Agreement” that comes in Wendys course ?.
We appreciate our help, thanks so much. Anders.
I got your email and responded there. Did you get it? – Thanks, Joe
Joe, I can’t find that discussion in your blog you had with a seasoned wholesaler who works PRIMARILY with RE agents. I happen to have a TB with $8K cash but wants a MLS listed property. Need to know the mechanics of how he pays out to the Agent.
Thanks,
Lee
Lee, these kinds of deals typically don’t work. If you can find a way to wholesale a lease option thru a Realtor, let me know!!! You need to have an open and creative Realtor that will let you do that. Realtors can’t share their commissions or give referral fees to non-licensed folks. It’s illegal, immoral and fattening.
Hello Joe,
I wanted to know how could I address wholesaling lease to options if I am a licensed real estate agent. Do I disclose this to the buyer and seller or am I still addressing myself as an investor or placement consultant. I am not actively workeing the business at this moment but I do hold a license. Could you please give me some insight on what I need to do to move forward with your concepts. I also wanted to know how soon can I start generating cash. As you might know when the economy took a turn a few years ago my real estate career business and career did too. I would appreicate any help that you offer. Thank You Again!
Kay
You can certainly do this biz as a licensed agent. In fact, sometimes I recommend that depending on your state. You just have to do them as an investor, not as a realtor. You have to disclose you’re an agent, but so what. Tell the seller you are not looking for a listing & you aren’t looking to make a commission. Once you get a property under contract, you have to disclose you’re an “owner agent”.
Hope that helps!
Howdy Joe;
My name is Tim Hahn and I now have a realtor license here in Portland,Or. I have little to no experience with real estate, but am excited about jumping right into wholesaling lease options. Simple and sweet! I had a few questions though, before I begin. 1st) Do I need to disclose that I am a realtor while looking for buyers and sellers on Craig’s list? 2nd) After finding a qualified tenant-buyer and assigning those contracts back to the seller’s, how does the changing of money work at the closing?
Cheers!
Tim
Hey Tim! Yes you need to disclose that you are a Realtor. Not sure about your second question. Have you read through the course yet? At closing, you won’t even be involved. It’s a transaction between the seller and the buyer.
Thank’s Joe;
I am looking forward to taking your course.
Cheers!
Tim
Hi Joe;
Just called you and left a message. Tim Hahn here again. I have been busy calling sellers on my spare time and finally have 4 new leads; one who is willing to do a lease option, but says that he wants to wrap this up in the next week or so. He said that he is willing to sign the contract for me to begin marketing the property. The sellers name is Bob and he brought up some good points that I did not have the answers to. I told him I was just beginning and he seemed understanding while repeating his main points. Do you have the time to perhaps help me with this before the opportunity slips away? Maybe we could partner up on this one? Thank’s and hope to hear from you. Cheers!
Tim
HI JOE…..JUST WANTED TO KNOW HOW I AS WHOLESALER WOULD GET PAID…..FROM TENANT OR SELLER THANKS.
Joe, have you ever had an issue with a due on sale clause? How do you go about disclosing this to Buyer & Seller?
No, I’ve never had a problem with it. It really isn’t the same problem with Lease Options as it is with Subject-To’s. But if you’re concerned about it, go ahead and put a clause in your contract.