After 15 minutes, Rich asked if everyone had come up with a proposed offer to make to the Whitings on their home. Everybody nodded affirmative.
Rich then asked Eddie if he would share his proposal with the group. Eddie was a little self-conscious, but as he began to talk he realized that he had done this; he knew what he was doing and so his self-confidence returned.
So Eddie began, “OK, Guys and Gals, here is how I would do it. I would make the following proposal to the Whitings:”
1. “I would offer to Lease the home for a period of 3 years at a monthly rental amount of $1,270 per month with a provision that if the monthly payment on the loan increased or decreased during the Lease period, my rental payments would increase or decrease a like amount. 2. I would have the right to Sub-Lease the property to a third party. 3. I would have an Option to renew the Lease in one year increments. 4. I would have an Option to buy the property for $151,000 at any time during the Lease period or additional Rental Option periods. I would pay the Whitings $500.00 Option Consideration. 5. The offer would include a provision that when I re-sell the home, the Whitings will receive 50% of the Net Sales price less $151,000 – which equals 50% of the Equity increase. 6. The offer is contingent upon me being able to find a tenant to Sub-Lease to within 30 days.”Taking a deep breath, Eddie continued, “Then I would find that third party to Sub-Lease to with an Option to buy the property. When I find the right party I would propose the following terms:”
1. “I would Lease the property to the Tenant/Buyer for two years at a rental rate of $1,400 per month. 2. I would grant the Tenant/Buyer an Option to purchase the property at any time during the Lease period for $160,000. I would require $5,000 Option Consideration which would apply to the purchase price when the Option is exercised.”Rich broke in at this time and asked, “Eddie, where do you find Tenant/Buyers with $5,000?” Eddie responded, “All over the place. Over the past year when I offered a Lease/Option deal, I had many responses – people with cash and good monthly income; however their credit is poor so they can’t qualify for a regular loan to buy a home.”
“Well Eddie”, Rich continued, “With poor credit, how do you know they will pay you?” “I don’t,” Eddie responded, “but if they don’t pay me, I kick them out then keep the $5,000 and repeat the process with another Tenant/Buyer.” Rich persisted, “Where are you going to find all these Tenant/Buyers with $5,000?” Eddie laughed, “Over the past year I have talked to several prospects who have that, or more. Further I have created for myself a Tenant/Buyer list with contact information when I need a prospect. I have Tenant/Buyers waiting in line for a home. I have found that once you become known, people seek you out.”
“Well Eddie,” continued Rich, “It sounds like you have really learned how to work this program, but what about your Realtor friend who helped you find this deal? Is he going to share in your good fortune?”
“Absolutely”, Eddie replied. “I’m going to pay him half his commission; 1.5% of Option price or $2,265 cash – up front, plus the other half when the Option is exercised and the property Sale closes.”
“Very good Eddie,” Rich said, “I would like to point out that another place to find prospective Tenant/Buyers is from the Realtor. No doubt the Realtor has had previous prospective Buyers who also could not qualify for a loan to purchase a home, but want to buy a home nevertheless.” Rich continued, “OK, as we wind this up, let’s look at the benefits received by all the parties in this transaction.”
Benefits Received: The Whitings - Home Owners 1. Relief from the monthly payments on the home. 2. Now free to move to new job location with $500 moving money. 3. A 50% share in the Net Equity above $151,000 when the property is sold. 4. Tax Benefits on the home deductions for Real Estate taxes, interest & insurance. The Tenant/Buyer 1. Able now to live in a nice home they want to own, and buy it when they can qualify for a new loan. Eddie Nivens – Investor/Buyer 1. $2,235 – Cash from the spread in Option money received, less that paid, less the amount paid to the Realtor. 2. $130 per month – The difference between rent money received from Tenant/Buyer and that paid by Eddie. 3. ? – 50% of the Equity increase between the Final Sale proceeds and $151,000, plus 100% of reduced loan amount below $151,000 when the property is sold. The Realtor $2,265 – Cash now plus another $2,265 when the property is sold. Commissions received on a property that he/she would have received zero without this deal. Opportunities to make MORE deals working with Eddie. These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
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