Sandwich Lease Option

[Reed Starkey]

@Brian Gibbons@Bill Gulley

I recently began direct marketing to find deals to rehab.  In this process I found a deal that is probably a great SLO.  I admit, I have been so focused on Flipping, that I never took SLO seriously.  Anyway, here is the deal.

Michigan Condo in good school district.

HOA $210

Owners Mortgage balance $100,000

PITI Payment $1100

Currently Rented for $1200/mo

Property Management fee $120/mo

Comps at $165,000

Obviously the Out of State owner is negative cash flow, but could probably sell this thing pretty easy with the equity in the place.

Could I offer the SLO to her at:

$1,310/mo lease (to cover her expenses) 1 yr lease with 2 extensions

$1000 for the 3yr option consideration

Option to buy at $135,000 to $145,000

Then sell the option as follows:

Option to buy at $165,000

option consideration $8250 (5%)

monthly lease payment of $1400-$1500, (This is FMV for rent in this area)

I tried to keep this thread to just the details.  Please let me know if I should adjust any numbers in this equation.

I am a licensed RE professional in the state of Michigan.

I will have my RE attorney draft all agreements, so the legal is covered, just looking for structure.

Also, if this deal looks like it would be better for another option other than the SLO, let me know your opinions on that as well.

Thank you!

[Brian Gibbons]

You do lose control in a master lease situation.

CFDs are common in MI, you might want to buy on CFD, and sell on a Lease plus ROFR or a TIC like @Bill Gulley advocates.

CFDs in Michigan

Michigan State Statutes

CHAPTER 554 REAL AND PERSONAL PROPERTY
NOTICE OF FORFEITURE OF LAND CONTRACT

554.301 Notice of land contract forfeiture; publication.

Sec. 1. Whenever the vendee in a land contract, or other persons entitled by law to receive notice of the forfeiture of the same, shall be absent from the state of Michigan, or concealed therein, or when the whereabouts of such person cannot be determined after diligent search and inquiry, it shall be lawful for the person giving such notice of forfeiture, to publish the same 3 successive times at weekly intervals in some newspaper printed and circulating in the county where such property is situated, if there be one printed and circulating in said county; and in case there be no newspaper printed and circulating in said county, then in some newspaper published in an adjoining county and circulating in the county where such property is situated.

CHAPTER 554 REAL AND PERSONAL PROPERTY
NOTICE OF FORFEITURE OF LAND CONTRACT

554.302 Notice of land contract forfeiture; proof.

Sec. 2. Upon a trial before a circuit court commissioner, or before any other court in this state, when it may become necessary to prove the giving of such notice of forfeiture, the same may be shown by the introduction of due proof of such publication and further proof to the satisfaction of said court, that the circumstances justifying such publication existed at the time thereof.

CHAPTER 600 REVISED JUDICATURE ACT OF 1961
REVISED JUDICATURE ACT OF 1961
CHAPTER 31. FORECLOSURE OF MORTGAGES AND LAND CONTRACTS

600.3101 Jurisdiction of circuit court to foreclose mortgages of real estate and land contracts; exception.

Sec. 3101. The circuit court has jurisdiction to foreclose mortgages of real estate and land contracts. However, the procedures set forth in this chapter shall not apply to mortgages of real estate and land contracts held by the Michigan state housing development authority.

CHAPTER 600 REVISED JUDICATURE ACT OF 1961
REVISED JUDICATURE ACT OF 1961
CHAPTER 57. SUMMARY PROCEEDINGS TO RECOVER POSSESSION OF PREMISES

600.5726 Recovery of possession following forfeiture of executory contract for purchase of premises; accelerated indebtedness.

Sec. 5726. A person entitled to any premises may recover possession thereof by a proceeding under this chapter after forfeiture of an executory contract for the purchase of the premises but only if the terms of the contract expressly provide for termination or forfeiture, or give the vendor the right to declare a forfeiture, in consequence of the nonpayment of any moneys required to be paid under the contract or any other material breach of the contract. For purposes of this chapter, moneys required to be paid under the contract shall not include any accelerated indebtedness by reason of breach of the contract.

Michigan Case Law

A general requirement for a valid contract for the sale of land is that it contain certain essential elements. More specifically, “such a contract must generally be in writing and must set forth the terms of the agreement with sufficient certainty and definiteness, specifying the identities of the parties and their mutual assent, the property which is the subject of the contract, the price of such property, and the consideration. Zurcher v. Herveat, 238 Mich.App. 267 (1999).

A land contract is an executory contract in which legal title remains in the seller/vendor until the buyer/vendee performs all the obligations of the contract while equitable title passes to the buyer/vendee upon proper execution of the contract. Id.

Specific performance of a contract for the purchase of real estate may not be arbitrarily refused, but in the exercise of sound legal discretion should be granted, in the absence of some showing that to do so would be inequitable. Id.

An action for the forfeiture of a land contract arises pursuant to the provisions of Chapter 57 of the Revised Judicature Act, Mich. Comp. Laws § 600.5701; A land contract in default can be accelerated and be foreclosed without first giving the vendee notice and an opportunity to pay when, in the same circumstances, the contract could not have been forfeited without prior notice. Minchella v. Fredericks, 138 Mich.App. 462 (1984).

See my BP Blog Lease Plus ROFR

https://www.biggerpockets.com/blogs/3/38181-rofr-i...

Bill Gulley's Blog on TICs

https://generalrealestateacademy.com/lets-play-tic...

https://generalrealestateacademy.com/wholesaling-t...

https://generalrealestateacademy.com/wholesaling-a...

https://generalrealestateacademy.com/wholesaling-a...