Welcome back...again! Quick refresher: We’ve been discussing two classic & powerful, tried & true real estate investing strategies:
Wholesaling and Lease Options, aka “Ugly” vs. “Pretty”.
Part One of this series was devoted to Wholesaling, and Part Two was focused on Lease Options. Examples were given. Terms discussed. Money put on the table. Moving on...
Whenever a ‘newby’ investor asks me where they should start, I usually tell them that wholesaling is a great way to earn some great money while learning the business, so they should consider starting there. After a while, and when their marketing starts generating leads from pretty house sellers, I tell them that it’s a great idea to learn that part of the business so that they can start to make money from those leads as well.
It’s a beautiful thing when a deal fits easily into a ‘type’ of transaction we know how to do, and it’s even more beautiful when all the stars are in alignment & a deal closes smoothly. But we live in the real world here, right? Besides, we’re problem solvers, and that’s why we get paid the big bucks! :)
Ideally, as we evolve & gain more experience as investors, we should be able to have a relatively even mix of transaction types balanced between ugly & pretty houses that we use to do deals. But that may not always be the case, depending on certain things like personality, market type, etc. It seems to me that there are people who love one & “tolerate” the other, kind of like Elvis & Beatles fans. But the wise ones “get it,” and do both, depending on the deal.
The seller & situation may not always be the only things we need to consider. We also need to think about the big, bad MARKET & what it’s doing. I don’t know about you, but back in 2008-2011, the last thing I wanted was to be stuck with the deed to a house where the value was going DOWN each month! So doing Lease Options or Subject-tos was not even a consideration. Further, most rehabbers disappeared overnight faster than you can blink, so wholesaling & retailing deals wasn’t much of an option either.
Out of that crazy mess, however, some new twists on old strategies & techniques began to emerge. I’d like to tell you about one of the greatest ones right now…
Wholesaling Lease Options!
Wait… What? What the heck is that? “Wholesaling Lease Options? I thought you could only do ONE at a time?!” Really? Who said that?
This is a killer strategy that has recently caught on in the real estate investing community. I see it only getting hotter as time goes by. After I briefly explain it to you here, you’ll quickly see why, and will want to add it to the arsenal of tools in your bag of investing tricks.
This strategy is also known by different names, according to whoever claims to have invented it. I’ve heard it called things like AMPS, MAPS, and ACTS. Call it whatever you like, but when used properly, you’ll be calling it the Easy Money in the Bank Strategy!
How Wholesaling Lease Options Works…
Here’s a typical scenario: You come across a pretty house deal. The seller usually has an underlying loan on the house. They could have a little equity or a lot. They could even be underwater. They’re usually current or not too far behind on their payments. The house is usually in great shape or doesn’t need much work.
Either the seller doesn’t feel comfortable deeding you the house or you don’t want to take title for whatever reason. You feel that the monthly payments are a decent amount for the area.
The house is pretty, the seller owes too much, and/or they want too much for it, so the situation doesn’t qualify for an ‘all cash’ offer. Wholesaling (the typical way) is out.
I know what you’re thinking. This looks like your typical Lease Option deal, right? Yes, I’d agree with you...BUT what if you just do NOT want to stay in the deal? What if the property is 3+ hours away from you? What if you just don’t want to deal with the hassle? What if you really just want to make some quick money with this house & be done? What if your spouse gives you that “look” when you talk about the house?
That’s where this new strategy comes into play! This situation is perfect for it.
You would sell it by offering it to a Tenant Buyer on an Owner Financing, Lease Purchase/‘Rent to Own’ basis. You’d look to get as much DOWN from them, and simply have them make the monthly house payments until such time that they can qualify to buy the house.
Finally, you would ‘assign’ the rental agreement with the tenant buyer TO the seller, and let THEM deal with the new tenants.
Basically, you’d be helping the seller do a lease purchase with a tenant buyer that YOU would find & install, and get paid to do it!
Let’s use a similar example from the Part 2 of this article... Let’s say you find a seller with a house with an ARV of $200,000. The house only needs a little paint or cosmetic work, but it’s totally liveable & in a great location. Their monthly house payment is $1,100, P.I.T.I. (all in, including Taxes & Insurance), and their payments are current. Further, they owe $190,000 on their existing mortgage.
After talking with them, you discover that they need something to be worked out on this house fast, and they’re flexible. You also learn that houses in this area aren’t appreciating fast enough to make you interested, and you really don’t want to stay in the deal for whatever reason.
Until now, you’d probably pass on the deal, because you might see it as being more hassle than what it’s worth. But not anymore! Instead, you decide to use this new strategy to quickly pocket between $5,000-$15,000 and move on to the next one.
So here’s what you do: You market the house on an Owner Financing or Lease Purchase basis. Within a few days, you find someone who has at least $10,000 to put down on a house, can easily afford the monthly payments of this place ($1,100), and is ready to move quickly. Further, they love the house and pass all the background & criminal checks.
So you go back to the seller & let them know that you’ve found the perfect tenant buyer for their house. You tell the seller that this person will take care of the house & eventually buy it outright, but in the meantime, they’ll make the house payments.
The final piece of the puzzle is for you to get the new tenant buyers to sign the lease agreement & simply assign that back to the sellers. Oh, and collect their big ol’ downpayment and put it in your pocket!
The end result? You now have $10,000 in your pocket. You’ve solved the seller’s issues & given them a solution. You’ve given a future homeowner a place to call their own & bought them the time they need to get their credit straightened out. And you’re done with the deal. Next!
I hope that you can see the simple beauty of this strategy, Wholesaling Lease Options. It works, and it works well. So keep your eyes open for the possibility of this type of solution the next time a pretty house deal that you don’t want to stay in crosses your desk.
And we’ll see you here next month!