All Forum Posts by: Steven Skinner

@Dyryl Burnett

One of the simplest strategies you can put into play for yourself without any sort of cash to provide upfront, would be to work with a master lease, or a "sandwich" lease. Find distressed properties in your area, perhaps ones with grown up yards or broken windows, then proceed to contact the owner of the property; pre-foreclosures are ideal, as well. Figure out what they owe on the property, if anything, and present to them an opportunity to have their property rented out for either takeover payments of their mortgage, or a monthly cash flow amount. You're responsible for the management, repairs, etc., but you'll have a strong cash flow from each individual property in that you get the entire amount leftover after their mortgage payment, or the amount predetermined by you and the owner if they owe nothing.

• e.g., $700 rent - $391 mortgage payment = $309 cash flow.

Another option you'll have, is to rent the property out on a lease-purchase/lease-option, or a "rent-to-own." With this, you'll receive a nonrefundable option-fee upon the tenant signing their lease. This amount varies anywhere from 1-5%, typically. Now make sure you only do this if you have a lease-option with the owner, rather than a regular lease, otherwise you won't be permitted to sell the property at all. Though, if this is how you choose to work it, you'll also receive an amount at the expiration of both leases, provided your tenant signed a lease-purchase or decides to exercise their option to buy on the lease-option.

• e.g., $70,000 tenant purchase price - $52,000 your purchase price = $18,000 profit.

Again, this is contingent on each of you having a lease-purchase/lease-option agreement in place. So, realistically, you can be as involved as you'd like. Keep in mind a typical term for this sort of lease is anywhere from 2-5 years. You stand the potential of receiving cash upfront, monthly cash flow, and a large lump sum at the end. All without having to fork over any of your own money. Hope this helps!

@Michael Herr

It sounds like your seller wants their cash now, as opposed to later. Just have them offer you 20% carry-back financing, get qualified for the remaining 80% conventionally, proceed to purchase the property and complete the renovations, then refinance after seasoning. You'll need a bank that's willing to lend you this amount with you having "no skin in the game," but since you'll be acquiring a commercial loan and not a residential loan, seeing as that's how financial institutions classify investment mortgages, you shouldn't have any problem finding one who will (you'll just have to search). Upon refinancing, you can use the same bank or another you're more comfortable with.

In this scenario: they get their purchase price, you're in with nothing out-of-pocket, and everybody walks away happy. Either that, or you can use some of your own capital towards 10% of the purchase price, another 10% carry-back financed by the seller, and the remaining 80% brought to the table by the bank. This will open you up to more banks that're willing to play. You have a few options, nonetheless. Hope this helps!

Monique,

You should know firstly that there is a very strict difference between a lease-purchase and a lease-option. In your case, unless you have every intention of purchasing the property at the expiration of your lease, you'll want to use a lease-option wherein you'll have just what the title implicates, the option to purchase the property upon the lease's expiration, rather than the obligation provided by a lease-purchase. Speak with your neighbor and figure out what their mortgage payments are, then subtract that amount from what you'll be able to rent the property out for to find your cash flow number:

• e.g., $650 rent - $392 mortgage payment = $258 cash flow.

Beyond that, you should know also that this may or may not save your neighbor from foreclosure. It's difficult to know (unless they tell you) how far into the foreclosure process they are, or how far behind they are on their payments. Not to mention the possibility of delinquent taxes and insurance. If you do have the money to pay an option-fee, which typically ranges from 1-5%, then your neighbor may be able to use that money to catch up their mortgage payments and then thereafter rely on you to rent out the property so that they may henceforth keep their payments current. Remember, you'll want a lower option-fee percentage on your lease (A-B) than you're going to implement on the sub-tenant's lease (B-C), so that if you pay, we'll say $1,400 as an option-fee, you'll be able to collect $2,100 or more from the sub-tenant; this way you'll be paid back your fee plus an upfront profit. Ultimately, though, the option-fee is not required and will only be applied at the seller's discretion; but may, in this case, be a necessity to avoid foreclosure due to outstanding mortgage payments.

It will depend on negotiations between you and your neighbor whether you use a fixed lease or a performance lease. With a performance lease, you won't have to pay your neighbor unless the sub-tenant pays you first. Whereas with a fixed lease, you'll be required to pay whether you receive payment from the sub-tenant or not, such as with a traditional lender. Either way, as long as you don't default on your end of the lease and approach grounds for early termination, you're protected from foreclosure. Since 2009, lessees are allowed to make use of the property until the expiration of their lease, despite foreclosure proceedings.

My advice is to get with your neighbor, figure out where they are, then discuss options based on their position to see what will prove beneficial to the both of you. But anyhow, that's all my brain can conjure at 2:00 AM, so I hope it proves useful to you. Best of luck!