How to Work With a Realtor “When Using the Lease Option to Flip Houses”
@ 2009 by Tony Barnes
When working with a realtor, both parties will be able to make money. Even though realtors do not like to do lease options, do to the fact they think they will not get paid or they do not want to wait until the property sells to get paid. Here is a solution to make it work out best for everyone; this strategy will also work with little to no money down. Propose to the Realtor that they should talk to the seller, and see if they will give them 7% instead of the customary 6% if they do a lease option, the realtor will be paid this commission when the property sells. Offer the agent 1% to split between themselves and the listing agent when the property sells. This works best if one is working with the listing agent of the property because they do not have to split the commission.
Make your offer to the seller; give a $10 option fee. Structure the deal where you make at least $150 month. You should also get a portion of your monthly payment and option fee credited to your purchase at closing. Locate a tenant buyer to purchase the property, and have them put 5% down. Remember you will be crediting back 50% of this option fee plus a portion of the monthly payment so that the tenant buyer has a down payment at the end. The option payment should be non-refundable if the tenant decides not to purchase the property.
Once the deal has been accepted, and the tenant buyer is in place, and realtor fees have been paid, you have completed the front end of the deal. At this point, you can have the tenant buyer work with your mortgage broker to help rebuild their credit if this was an issue; you want the tenant buyer to be able to buy within the one year lease period.
Back end of the deal, when the tenant buyer is ready to buy, you will need to set up a back to back closing. One can have the a-b closing funded by a day funding company in the first closing, so that you purchase the house. The realtor is paid by the seller at the first closing, right after that closing you have the b-c closing where you sell the house to the tenant buyer. At this time, you will pay off your funding with the sale of the property and anything left over is your profit.
Example:
House value is $100,000 and move in ready the seller is asking $95,000, you offer $90,000 lease option, and the seller accepts. You put $10 option fee down, and already have a buyer lined up for $104,000. Monthly payments are $600 per month of which $150 a month will be credited back to you at closing. At the end of closing you will also get 100% of the option fee credited back to you. When selling to buyer, your lease option is for $800 of which $150 per month will be credited back at closing. The buyer will also get credited back 100% of the 5% down payment that the tenant buyer gives you at closing.
Description a-b b-c Loan amount 90000 104000 Option amount 10 5200 monthly payment 600 800 Monthly option credit 150 150 rent collected excluding option credit 5400 7800 credit at closing(Includes Monthly and Option portions) 1800 7000 closing costs Seller 2250 2250 Day Money 1800 Realtor Fee 7% from seller 6300 Realtor Bonus 1% From Buyer 900
In this example, you would get approximately $5190 upfront, $2400 difference in your monthly payments and $7240 at the closing for a total of approximately $14,800 in profit.
The Realtor will win by getting an extra 2% for waiting for their money. The seller will win by the sell of a property they no longer want. The seller also still makes money while waiting on the property to sell, and gets the tax benefits of the property until the property is sold. The investor gets money for putting the deal together, and the buyer gets a house at fair market value when the property is sold and gets to enjoy the home while rebuilding credit.
About the Author
Tony Barnes is the President of Barnes Investment Properties and is a Private Real Estate Investor. Tony looks for win-win situations where the buyer, the seller and Tony can all win. For more investor information go to http://sqz.barnesip.com/investor.html
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