In this issue:

Getting Started

Advanced Strategies

Upcoming Events

Getting Started:

Q. We have purchased several of your courses, and have listened to almost all of them. We offered our personal home as a lease purchase. This was our first attempt to use some of your strategies. We have an offer on our personal home with the buyer wanting us to carry a $25,000 second. It would seem like we would be better off doing it the lease option way. (More control). The buyer’s realtor and the loan officer are saying lease purchase is totally out of the question. (We know why...because it could cut their commissions out of the picture.)

The buyer is paying full asking price, and is supposed to refinance in two years paying us off. It is supposed to be documented at the title company, and their mortgage company will know we are carrying the second. I told the buyer, if something better came along this weekend I would not take their offer, if something didn’t, I would most likely take it. Our new home in The Woodlands, TX should be ready in about four weeks.

If we take this second, I know from your tapes, we should make sure we are listed at the mortgage company to get notification if the buyer gets behind. Property should appraise for $140,000 or $145,000. Sales price is $125,000. (I thought of adding a couple thousand on to the sales price, to help out-weigh the risks.) What interest rate should we ask for? Payments would be for two years with a balloon payment at the end when she refinances. What penalty should we give her if she does not refinance in two years? If she isn’t able to pay off the balloon, (most likely) what steps would you take if this were you? What options are available?

I am a real estate broker, and I sell REO properties for various banks and PMI companies. I am also a mortgage broker, (just getting started on this side of the business). I don’t want to make a poor decision, that could be construed as unethical, and cause me future problems. My husband and I think you are so smart. We bought your CDs, etc., and are very glad we did!

If there is a chapter on owner financing second, let me know. I will find it on the CD series. I know you’re busy. I appreciate your thoughts, or your staff's thoughts. (I know you were going to train others to help answer questions, so you can have more family time.)

Thank you,

Kathy

A. First thought is why would you have it listed for $125,000 if the property will appraise for $140,000? I am far more concerned about you leaving $15,000 on the table than the terms.

The lease option sale has several advantages. One reason is you get to depreciate the property, however, the biggest is about half the LO buyers do not buy. You have received more money than if you rented and don’t have to pay it back.

As to the Real Estate Broker, you could always tell the broker to have the buyer pay the fee. If you got full price, as you said you did, you could pay the fee. To me full price would be $140,000. Carrying back a second is not a bad idea if you have a large down payment and a good credit buyer. Two years is a reasonable term. I would ask for 8%.

As to safety, you need to be sure the first is paid each month.
There are several ways to do that.
1. Have both payments paid to a trustee who distributes them.
2. Get a duplicate payment notice of the first sent to you.
3. Get the codes to go online and check their mortgage account so you can see if they are paying the first mortgage on time.

I have sold property with a new first and a second for the entire equity…but only if I am selling at FULL appraised value. I would have to be a very, very motivated seller to sell at a discount AND take back a second for all the equity. So I am HOPING you are getting a good down payment too.

If you are selling a $140,000 house for $125,000 with a new first mortgage of $100,000 and an owner carried note for $25,000, I'LL BUY IT!

BZ

P.S. How are you doing your mortgage business? We could help you there. I am always looking for good deals. If any of your REOs fit in that category, we should talk.

Q. Dear Mr. Zick,

Within the last few months, I have heard you speak at the local REIO (Fort Worth) and AIREO (Dallas) meetings. I always sit beside J.L. Moore. You seem to be the only speaker that touches upon straight options. Most others present on lease purchase options focusing entirely on the leasing portion.

I am interested in "wholesaling" properties using straight options. As you know, this way I am not obligating myself to close on a definite day, much less ever if I do not find a buyer. I have received your "Creative Tools for Finding Hidden Profits in Real Estate" article. Thank you.  I do have the following questions:

• Do I "sell" or "assign" my option (or are they one in the same)?
• What paperwork is necessary for the process? I do have a fairly good "Option to Purchase" agreement to sign with the seller. But when I find a buyer, do I complete a standard TREC purchase and sales agreement with the seller and then with my buyer?
• Do I keep the seller and buyer from going around me by recording an affidavit of memorandum?
• Can you do a simultaneous close with an option?

I hope you have the time to answer my questions as I'm looking at Optioning a pre-foreclosure and the sale is next month!

Thank you for your help.

Sincerely,
Gaynel

A. “Sell” or “Assign” are one in the same. You usually say on the document “I hereby sell, assign, transfer and convey all my right, interests, privileges and responsibilities in the follow option.” There is a form in my options paperwork. . My approach is different from the form you have, however, if you can’t afford my forms, I guess you can use the one you have. It lacks my special clauses but it is binding. The answers to your last two questions are “yes” and “yes.”  If you had my materials I could go into more depth but this should at least answer your questions.

BZ

Q. Bernard, I’ve listened to your options course on tapes and I would really like to attend the next boot camp on options. I think you’re one of the smartest & most creative investors around.

In Cincinnati, the city council created a stupid ordinance that makes lease/option very unattractive. One of the provisions is limiting the non-refundable option consideration that can be collected to just 1.5 times the lease. I am thinking that the way around this is to do a purely “option” contract. The provision is the optionee (buyer) will have the right to buy the house by paying a certain amount in 13 installments such that there is a one time fee to get possession and twelve equal payment every first of the month (equal to PITI + $200 _ or plus whatever cash flow the optionor {seller} wants). In this way, I can demand more than 1.5% option fee because I have no lease agreement.

What do you think?

Thanks!
Disappointed In Lease/Option in Cincinnati

A. I don't think this will work. Why would someone give you option consideration if they can not live in the house. Consider the allowed non- refundable option consideration plus a refundable consideration. It is refundable IF they have paid on time and did not tear the place up. However, it applies to purchase no matter what. You will get a better tenant who is more likely to buy. BZ

P.S.  You will never get to come to our boot camp unless you travel.  Your REIA has such a great and active library that it kills the sales of educational materials. You have to realize we have almost $2,000 in out of pocket expenses to show up to speak at a group. Then we split the sales, usually 50/50 with the group. On top of that it takes two days out of my life. Groups with very active libraries, like yours, depress sales and it hard to cover expenses sometimes.  I am sure you see the logic.  In addition, dozens of people I could help think "I'll just get this at the library" and they never do.

Thanks for your kind words about my teaching.

Q. My aunt has some money to invest; she would like to know what the programs you are offering to investors are. What would it be her return, time commitment, etc.? Please send us information.

Thanks,
Renee

A. If you invest, you mean loans. We can get you 10% on first mortgage positions for sure. Sometimes we can get more but there would be times that your money would not be working. At 10% we can keep it working all the time. The terms vary but usually six months to a year and interest paid monthly. Most of them are 70% loan to value on single family houses. Most of our dealings are in Houston. The amounts vary. What is the range of dollars you'd be interested in investing? I am right now working on several joint venture deals with students that would use loans I could personally guarantee. However, we would need to move quickly. We get you a title policy, appraisal and property inspection. You supply the check. Closing is done by the title company.

BZ

P.S. If she wants an equity deal, we do those too. The investor puts up the money, we do the work. usually 90 - 95% of appraised value. We rent it to break even and provide property management. When we sell, the investor gets their money back first and we split the profits above that. Let me know.
 

Advanced Strategies:

Q. I have encountered down here in Florida the problem of "Flips" where the Lenders (representing the ultimate buyers) are looking for what is known in the industry as "Title Seasoning." Most Lenders are requiring that the person on contract (as Seller) is on title for a minimum of 12 months. If the seller is not then the Lender won't fund the loan. They make it part of the conditions in order for the final approval to be issued by the underwriter. Once the "clear to close" is given after final approval then it scheduled to close and funds are wired to the title company.

Now, how do I structure the transaction if I were to do a "Double (simultaneous) Closing?" Example... I would have an executed contract with my seller for $60,000 and then were able to find a buyer for $80,000 and of course draw up a second contract with my buyer for $80,000. My contract with buyer goes to the title company for title search and for preliminary title commitment. Obviously, my name as owner on record does not show. The Lender's underwriter reviews the title commitment and catches it and now this becomes a red flag!!!

I didn't want to do an assignment since the parties could see a $20,000 profit. How can I overcome this problem????

Sam in Florida

A. There are few solutions for this. One is to buy on an option and assign the option for the $20,000. Then the second buyer will show $20,000 paid and the balance due under the option. A second one is to get the buyer a “dent and scratched” lender, or sub-prime lender as they are called. They charge more but often don’t have a prepayment penalty and don’t require seasoning.

Come to our next Options Boot Camp and I will give you more. We spend about an hour on this topic but it would fill two newsletters to tell you here.

BZ

Q. I have found a house that I think I could do a simultaneous close, essentially have a buyer for the house before I even buy it, but I called a Title company and they said that I have to do two closes. I close on the property then turn around and sell and do another closing. Is this really the way it works or did I not explain what I wanted well enough to the Title Company? If I do a simultaneous closing is there typically any money out of my pocket? I really need this information fast. This house just came on the market and is selling for only 30 per sq. foot in an area that comps in last six months are going for 70 per sq. foot. If I don’t hurry someone else is going to get this property.  All it needs is a new roof.

Damon


A. You really have two choices. First, get a different title company. That most likely will not work. In these situations, I usually get a lawyer to close the deal.  It really depends on the reason for the denial. Some areas have laws regarding this but most of the time it is just the policy of the title company. Besides, the lawyer will often find a legal way to do it even if there is a law.

BZ