Contract for Option

Mike: Welcome back to the FlipNerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.

Jack: Hi, my name is Jack Shea and I’m going to be the host for the REI Classroom today. Find me on my website, JackSheaRealEstate.com, that has articles and blogs and things about trust options, IRA checkbooks, and that. So that website has resources for you and some books and products.

Mike: This REI Classroom real estate lesson is sponsored by UglyOpportunities.com.

Jack: For this class, I’d like to talk to you about some option tools that are kind of unique and available to investors, whether they’re note investors or real estate investors. A couple of things that we use is a contract for option. An option is a piece of personal property and it is different than contracting for real estate.

So if we have a piece of real estate and we have an owner/tenant with a small amount of money that would like to segue into owning the property, an easy first step is to give the tenant a contract for option. And it’s a document that we sign and has the math of the monthly payment and the credits. But the difference in that and a contract for deed, a contract for deed in real estate has very strong implications that after a person on a contract for deed, if he misses the first payment, a foreclosure is required.

At the moment, foreclosures are two years in Florida. The last one I did several years ago took a year in Florida because I granted an option to a tenant. And the judge said, “You can’t evict a tenant with an option. He has a title right in the property and you must do a foreclosure.” So that was a year that was painful and expensive. So I created a contract for option. Thousands of people have been using it for 25 years or better and no one’s had a problem.

Other states and other municipalities have toughened up on options and getting the title interest on property. This contract for option clearly states that the buyer does not have a title interest in the property. He has an interest in personal property, not real estate. And after he makes his qualified 36 months or 48 months’ payments, he will get a recordable option delivered valid for 90 days, where he can get financing.

So this trust option, another that we have, a lease in a contract for option. And we actually have a contract for beneficial interest, which takes more of a down payment and is more like an installment sale and the buyer/tenant has more rights in the property. So we have several layers of involvement and equity that can help them segue into a title interest in property. And if they’re gathering equity, they’re taking care of the property.

We have happy campers with these tools and you can use them. And check it out and I hope they become profitable and safe for you in your investment tool. Thank you. We’ll talk another time.

Mike: HomeVestors, the “We Buy Ugly Houses” folks, is a franchise system of hundreds of real estate investors that have purchased over 65,000 houses. If you’d like to learn more about the most powerful real estate investing system in existence, whether you’re a pro looking to take your business to the next level or whether you have no experience at all but a burning passion to be successful at real estate investing, please visit FlipNerd.com/ugly to learn more.

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