Flipping Lease Options In Maryland

[Kevin Lackland]

Any Realtors Flipping Lease Options In Maryland?

[Brian Gibbons]

Originally posted by @Tyrus Shivers:

@Kevin Lackland  @Lamont Marable 

Not many Realtors are flipping lease options. Most do not understand how they work and it is risky. Are you looking to wholesale the lease option or be stuck in the middle? Most Brokers are not allowing this or they allow it, but provide no support. Essentially staying away from a net listing is what is important.

VA MD and DC are all great markets and all have Brokers that do not like Seller Financing, that is buying on sub2, lease option (assignments, sandwiches) and wrap around mortgages, all legal but Brokers want "vanilla deals" no risk to their E and O.

If you read Shift by Gary Keller of Keller Williams, et al, it says, in Ch 10, Creative Financing,

...Creative financing… This is the term we use to describe creative ways to resolve affordability challenges. Every buyers unique in every seller is unique. Every lender is unique. And then along comes the economy and the market itself, creating the unique environment in which these three parties must do business. All of this means one thing-if the conditions warrant creative deals but you are able to put these deals together, then you could be doing many deals.

Unfortunately, creative financing isn't well understood by most and as a result sometimes gets a bad rap. But it's far too valuable a vehicle to abandon just because a few misbehaving individuals have misused this critical real estate consulting tool. In a shifting market you will often need all the legal sound historically proven financing solutions at your disposal to get some tough transactions closed. As a real estate sales consultant, your buyers and sellers expect you to educate them about all the financial options they might have to create the best win-win transaction possible. So, when the market shifts it's time to bring out the creative financial ideas and expand everyone's opportunities.

end quote

```````````````````````````````````````````````````````````````````````````````

Your challenge as a creative problem solver for sellers and buyers there are alot of lawyers in DC and MD and VA, so you need a great Creative Finance Attorney.

BROKERING deals, flipping lease option contracts, can be a problem, so get licensed.  Buying on a wrap or sub2 is less of a concern, but you have the due on sale clause.  Property Trusts are used often with sub2, wraps and lease options on the buying side.

On the selling side, selling on Lease w Option, be careful.  Think of a lease and a ROFR as a substitute.  Stay away from rent credits as they approach a financing arrangement.

And to prevent a lease with option being recharacterized as a sale, by the IRS, see these points...

1. The rent should be at or near fair rental value. Breece Veneer & Panel Co., 232 F .2d 319. Get a written opinion of the rental value from a qualified real estate professional.

2. Keep rent credits toward the option price to a minimum. Generally, 20% or less is considered reasonable.

3. The option price should be at or near fair market value. Get a written opinion of the market value from a qualified real estate professional. Breece Veneer & Panel Co., Ibid.

4. Try not to tie-in substantial lessee improvements with the option exercise.

5. Do not pass legal (or equitable) title to the optionee\lessee\buyer.

6. Demonstrate that you intend to do a lease-option and that you believe the rent and option price to be reasonable. See Benton, 197 F.2d, 745; Lester, 32 TC, 711. Use arm's length lease-option documents along with the counsel of qualified professionals.

PS Lease Options Tax Stipulations from the IRS vs Dodd Frank-Safe Act-TILA issues with Owner Occupant Seller Financing requirements are different.

@Steven Hamilton II  and @Bill Walston may want to comment.  @Bill Gulley always has useful advice on building a strong viable business.