Deal or No Deal in Lease Purchasing

Deal or no Deal? You Decide.

Ok, you just found a home in the Sunday newspaper classified section under ʻhomes for saleʼ. It was built by famous developer Swampwater Jones in East Bumble, Florida. The home has been vacant for over 6 months and Swampy is Motivated with a capital “M”. The upscale house overlooking Early Bird Special Parkway is currently worth 500K and the sales price is 465K. There is a problem. It has a monthly payment of $3500.00 a month (PITI) on a 400K

mortgage. Market rent, due to $2500.00. Thatʼs a $1000.00 owner wants and what the go to the property which is in borhood with good schools, the willing to do a 3 year lease with agreement is assignable. He month rent as option considera-

the current market decline is difference between what the marketplace can support. You great shape, in a nice neigh- whole enchilada. The owner is an option to purchase. The agrees to do the deal for one tion.

Ok, what do you do? Do you do The Deal or is it a No Deal?

If you do the deal, do you do a Sandwich Lease or an Arbitrage (quick turnover) Assignment? Should you wholesale to an investor or retail to an end user tenant/buyer? How do you make any money if the market rent you agree to is $1000.00 upside down? Note: Think about your options for a moment. Cover the below answer with your latest copy of ʻThe Tofu Journalʼ. Ready? Letʼs break it down. Would you do the deal? Answer: Of course! Controlling a good home in a great neighborhood with a below market value using an option, is smart real estate. You ask, how do I make the numbers work? I would negotiate with the owner to raise the price to full market and structure a generous rent credit instead. Why? Even though the home is a great value, the only way to sell a home with over market rent (1K) is to give a greater value to the assignee. We have 35K to play with. I would have the owner give that money as a rent credit and create a generous incentive to the tenant/buyer. How about $3000.00 a month rent credit (1 year) for paying on the first of each month and taking care of all minor (not structural or habitability) maintenance under $500.00 per incident? No money comes out of the ownerʼs pocket and you ease the problem of the over market rent. The owner also saves real estate commissions. Everyone is happy. Sandwiching is out of the question unless you can refinance the loan and get a lower monthly payment. The best and easiest way to do this deal is to do a retail assignment. Sell the contract to the end user. I normally try to get 2.5%-10% of the face value of the property. In this case that would be $12,500.00 to $50,000.00. In many a case, if that kind of money is not available we become the “National Bank of Higher Altitude”. In this business, it a big plus to create notes and have passive income. If the tenant/buyer/assignee has only 5K, I would be willing to take the balance and structure some kind of monthly payment secured by a credit/debit card or echeck. If you want, forego the stream of income, discount the note, sell it for quick cash and take that trip to Fargo next February.