Today’s REI Classroom Lesson

Jack Shea explains how to utilize option loans as a real estate investor.

REI Classroom Summary

Learn why option loans make sense from our expert, Jack Shea.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

Mike: Welcome back to the 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 the host today. We’re going to be talking about option loans and I’m at the website, information about these various items.
Mike: This REI Classroom real estate lesson is sponsored by, FlipNerd’s private investor coaching program and your blueprint to investing success.
Jack: So one item I use is using an option to make a loan. And this is for various reasons you might do that. In case a loan terms might accidentally run over the legal limit and that could be usurious or kind of a safety reason. Here’s what I do, it’s private. Get an option on the property or a note for 50% of value and that’s . . . we don’t intend to get that but it provides a margin for you, so safety.
So we have a schedule of payments like you would on an option on a loan of every month at X for six months or a year and the regular payments are laid out. And if they’re paid on time or paid early it sort of doesn’t matter. So the payment schedule is laid out. Then the way we perfect this is I get a deed from the person, the option arm for the property or the note in assignment and we put it in an escrow, along with, I’ll put in a quitclaim deed. So our safety, there’s no intent to do this if things go wrong. I might, I have control of the property or note.
So in that escrow if I’m a title company, if somebody will hold that and they will, or you can find somebody to do that, so if the payments come over time, they come on schedule and you reach the end of the year agreement, everything is okay if it goes into an overtime or extra interest rate whatever your terms are. But whenever it’s completed you simply record the release of option, cancel the escrow, tear up the deed, and this is an off the radar way to loan money by using an option where everybody is covered. I hope you can use that to your benefit in your real estate note investments.
See you next time.
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