Flip Tip Summary
Many real estate investors ultimately find a way to do more deals by getting creative. If you do, it’s critical that you do these deals right, not open yourself up to excessive risk, and make sure that all parties understand what’s going on…so nobody gets hurt or upset. Wendy Patton is the queen of options, and she tells us more in this FlipNerd.com Flip Tip.
Flip Tip Transcript:
Mike: Hey it’s Mike Hambright from FlipNerd.com and we have a quick VIP tip to share with you from Wendy Patton, who is going to share a tip on when it makes sense to use cooperative lease options.
Wendy: Alright Mike, thanks again for having me. A cooperative lease option is when you flip or wholesale an option. So you’re going to get a lease with an option to buy from a homeowner. Then you’re going to sell that for a fee to someone else. Now you’d want to use this when you think about all those deals that you get when there’s not enough equity in the property for you to keep it, or as an investor to wholesale it to another investor, it’s just not going to work. Let’s say the seller owes $100,000 and it’s only worth about $100,000 right now. I can still make money on that as long as the seller’s willing to do a lease with an option to buy.
Typically, what I’ll do is option that property from the homeowner for about $100,000, find someone who wants to give me 3% to 5% down, that would be $3000 to $5000 for that deal, and then I flip them my deal to option that property for the $100,000. Of course it’s going to be worth probably $300,000 to $500,000 more by the time they exercise the matter. At least that’s the intention of that lead for that tenant buyer. But see, normally you and I would walk away from those deals as a real estate investor because there is no equity there. There is nothing for us to get, the seller’s not behind on a mortgage, they’re not going to do a short sale. So this is a great strategy to pick up an extra 3% to 5% of that purchase price. So a $100,000 home, $3000 to $5000, $200,000 home, $6000 to $10,000, you got the idea. But stop throwing away those leads. There may be some money there for you if you do a cooperative lease option agreement. Make sure when you do one that you understand how to structure the deal with the seller, with the buyer, and to make sure that it’s all legit and legal. So definitely make sure you’ve got the right paperwork, that you’re working with someone who knows how to do these.
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Mike: Please note the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.