Lease Purchasing + (Creativity x Knowledge) = Great Paper

Like many of you, I became interested in Notes and Paper through the Real Estate transactions which I created. Real estate has its ups and downs, but paper is a source of profit without the usual tenant and toilet problems. Several of my real estate transactions have produced very nice paper, but the highest yields always come from notes that I create, particularly from my Lease Purchase transactions.

I find that I just don’t have the time, tenacity or patience to constantly send mailers or to make phone calls to find QUALITY/PROFITABLE notes. It seems that all I have ever found are 95% LTV notes for properties in Iraq or Yugoslavia!

Don’t buy notes, Create Them !!!

One of the best ways to yield high profits from paper is to create a scenario where I don’t have to invest a great deal of money, but rather where I have a lot of leverage ( or my favorite word, Control ) in a property. I aggressively find properties where I rent with an option.

Sublet and Assign

I Lease Option a property for as little money as possible (usually 1 or 2 months) and negotiate the best price in lieu of rent credit toward the purchase. I then, through a variety of contemporary marketing techniques Sublet the property, re-couping my investment and generating an instant profit (option consideration). Sometimes I profit from the rent and at the close. If the property is purchased I either take cash or a note back inorder to help the buyer close. In other situations, when I want to generate immediate cash I assign my Option to an investor with a tenant already in the property.

Examples: I negotiated a 2 year Lease on a property worth $240,000.00.

The selling price to me was $200,000.00 with $1400.00 Option Consideration and $1400.00 per month. I subleted the home on a one year Lease Purchase with $8,000.00 up front option consideration. The buyer moved out six months later and I kept the option consideration as allowed by the contract. I next subletted the property to another couple for $5000.00 who allowed their option to expire. I then sold my option agreement to an investor for an additional $5,000.00. (Remember, the property was 40K under market and I was out of the loop completely). The investor informed me that he made $19,000.00 one year later.... Not bad!

The above transaction netted me a gross of $18,000.00 on a $1400.00 investment. I did not have to pay taxes, insurance, maintenance, home owner fees, etc. My only cost was the $1400.00 per month which I was receiving from the tenants ( with a small monthly profit from the rent ). I sold my option contract, as it was assignable, just like a note. The yield from a $1400.00 investment to recouping 18 K within 12 months is unchartable!

In another transaction, I found a nice condo with a very motivated out of state owner whose property had been empty for several months. I made the owner the following offer: 2 year Lease with Option to purchase at $800.00 per month with $1600.00 Option Consideration and a sale price of $100,000.00. I then placed one of my buyers (found in advance of offer) in the property which I sub-Optioned for 1 Year at $1000.00 per month with $4500.00 Option Consideration. Next I sold my Option contract to an investor for $4500.00. The investor will reap the positive monthly cash flow and will make a tidy profit when the property is purchased.

Note: The new investor, of course, must honor my agreement with the tenant in the dwelling.This entire transaction grossed $9000.00 less the $1600.00 I paid. I made $7400.00.

These transactions create an excellent way to originate paper and maintain cash flow while keeping your investment and liability very reasonable. (Sometimes they bring big deals, too!)

All it takes is a Lease Purchase plus some Creativity and that will equal great Profits.

STRATEGIES
1. I negotiate a Long Term Lease with an Option and sell or assign the Option to another.

2. Same as above, but I sublet the property with an option to another buyer. I receive option consideration over and above what I paid, a profit over and above the rent I negotiated and some profit at the close or I take back a high quality note.

3. I find a Long Term Lease Option, find a tenant to sublet to and then assign the entire deal to an investor. The investor will reap the monthly profit and recoup his investment and if the property is purchased will reap even greater profit at the close. In the event the property is not purchased he can buy the property himself for the lower price or sell the option to another. If the option is close to expiring, it sometimes can be renegotiated for a longer term with the owner.

In summary, Lease Purchases, if negotiated with superior knowledge can create control in any type of property without large deposits, bank qualification and can generate up front cash (consideration, residual income (Rent) and cash profit at the close or you can take back a note). Finally, if you create and negotiate a good enough deal you can assign your option contract to another. I find that creating profits with option lends itself to high profits, immediate cash flow, control of properties with very little down and a great way to create your own paper.