Partnering With Owner
Hello,
In Brief:
I received a call from a motivated seller. The house is located in a smaller town close to my local area. Since I am not familiar with the market in this town, I do not want to tie up my money in the deal.
The owner is anxious, and has quoted me a price that is well below the assessed value of the home.
My question is, I was wondering about setting up a partnership with the owner. One that would place me in the second party position, where I would establish the type of sale (depending on the owner's needs), do the marketing, and possibly find the buyer financing if needed.
I would not want to purchase the property, but control the sale of.
The owner would then be bound to pay me a percent of the sale, over and beyond what they initially asked for the property.
Is there a good way to go about doing this, Or might there be a better way?
This would be my first deal, and I am concerned about tying up any money, so my idea is to strike up a deal with the owner on splitting any profits.
Thank you, Janis
In Florida you would need a Real Estate License to get "paid" for selling a house for Commission. I don't about in any other state.
Lance
Thank you for your reply. I believe you're right, about my state also. I wasn't looking at it as "commission". I guess I would need some sort of contract and vested interest to make it correct.
Janis
Sign an option for the property and just agree on a sells price. This is legal and you are selling someone elses property, its yours you have the right to sell.
Sire
How would an option for the property work?
I am kind of in the same situation, but I'm the seller. I agreed to have a friend sell my income property and whatever he sold over my asking price he could keep. Well he found a buyer who is willing to pay $6000 over asking price which is great. However, I'm in CA and it is illegal to pay commission to anyone who doesn't have a RE license. I don't mind paying him the $6000 "under the table" but by doing so I will be taxed at higher profit margin than my actual profits. In this case it comes out to around $2,100 less profit for me for just letting my friend sell at a higher price.
The tax issue might be minor for now, but want to get into REI full time and use my friend to find me buyers and work out the same arrangements as above w/ him. That could get costly.
Thx
If I'm out on an appointment and I can lock up a good deal but it is something I can't work on or move on then I sign an option for 7 days.
For instance I signed a property for 134,000 worth probably 210,000 after rehab. 7 day option, I assigned that option to another investor for 5,000 two days later.
My lawyer told me, at least in my state (MN) that as long as I have a vested interest in the profit of the property it is legal to do.
I am interested in getting involved in these kind of deals. I have a house in that I am looking at that has a motivated seller asking 175,000. I could probably get it for 170-165,000. The houses in the area have sold for 190-205,000. How could do I find an invester to do an option with? I was going to use my own money, but if there is way to do it without a lot out of pocket I would. Any help would be great.
Is the option the same as a "Lease Option to Purchase"?
Janis
An 'Option to Purchase' is just that. You have the option to, but not the obligation to purchase the property at the agreed upon price for the term of your option agreement.
Example: Seller wants $100K for a property. You and Seller sign a 7-day option to buy at that price. That means that within 7 days, you can 'exercise' your option and sign a purchase agreement.
An option is a vested interest in the property. You usually have to put a downpayment (ie buy) on the option. You can also sell, or assign, your position in the option (if the option contract is worded correctly).
Example: The $100K house is ARV is $150K. Another investor wants to pay $110K for the property. You can assign your option contract for $10K and let the seller and investor close the deal directly.
Roger
Roger,
Thank you. Excellent job of explaining.
Janis
Roger,
A question about the option to purchase, with a 7 day or whatever amount of time, does the amount of time for the option need to be an addendum to the option?
Thank you, Janis
No, within the option contract, there will be a line that says something to the effect of "this option contract will expire on xxxx day unless a formal notice to exercise the option has been given."
If you have not 'exercised' your option or signed a purchase agreement by that date, then any 'option' money (the downpayment) that you have given the seller is forfeited to the seller.
Roger
An Option is the Right to Buy at a Future Time. You pay some Consideration (something of value, $$ or a Note or even a promise) Could be a day or a number of years. Meanwhile the owner retains possesion of the property. Usually the Owner keeps the Option Consideration whether or not the Option is Exercised.
A Lease Option gives you the right to buy in the Future, and possesion of the property. You usually have to pay rent during this Option Period. Sometimes you are able to negotiate that some or all of the rent paid goes toward the down payment, when (if) you exercise.
Thanks again, Roger
Janis
Great posts here, wish I had this a year ago. Now every appointment I go out on I get an option. Pretty much 99% of the time.
If after talking we just can't come to a win-win I then usually end the conversation with a question like this:
Okay Mr. Seller, well I guess we just don't have a fit here, I do appreciate your time. Although let me ask you a question, what is the most realistic price you would settle for if I knew someone to buy your property in 5 days?
Said right I usually get a much lower offer or at least I get their bottom line. I then ask well would you sign something I can prove to someone that you would agree on this. That is when I bring up the option and go through that.
More than 50% of the time though when I do sell this option to another investor they get a lower price, because they then go and negotiate a little after looking closer at the property, and they actually come with a purchase agreement so that changes the sellers perception to get the deal done.
Just this alone earned a nice small amount of income that pays for my advertising, the deals I sign now are even better.
Scott,
What is the usual amount $ you put up for an option?
You are saying, that when you negotiate the option with the owner and pass on the option to an investor, they are still able to negotiate a lower price with the owner?
What are your options worth $ to an investor? Are they willing to pay your price when they still think the agreed upon option can be negotiated lower?
Thank you, Janis