Investing Real Estate LeaseOptions And “Subject-To”Deals
ffirs.qxd 5/3/05 8:15 AM Page iInvesting inReal Estate withLease Options and“Subject-To”DealsPowerful Strategies forGetting More When You Sell,and Paying Less When You BuyWENDY PATTONJohn Wiley & Sons, Inc.
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ffirs.qxd 5/3/05 8:15 AM Page iInvesting inReal Estate withLease Options and“Subject-To”DealsPowerful Strategies forGetting More When You Sell,and Paying Less When You BuyWENDY PATTONJohn Wiley & Sons, Inc.
ffirs.qxd 5/3/05 8:15 AM Page iiCopyright 2005 by Wendy Patton. All rights reserved.Published by John Wiley & Sons, Inc., Hoboken, New Jersey.Published simultaneously in Canada.No part of this publication may be reproduced, stored in a retrieval system, ortransmitted in any form or by any means, electronic, mechanical, photocopying,recording, scanning, or otherwise, except as permitted under Section 107 or 108 ofthe 1976 United States Copyright Act, without either the prior written permissionof the Publisher, or authorization through payment of the appropriate per-copyfee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923,(978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com. Requests tothe Publisher for permission should be addressed to the Permissions Department,John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011,fax (201) 748-6008, or online at http://www.wiley.com/go/permissions.Limit of Liability/Disclaimer of Warranty: While the publisher and author have usedtheir best efforts in preparing this book, they make no representations or warrantieswith respect to the accuracy or completeness of the contents of this book andspecifically disclaim any implied warranties of merchantability or fitness for aparticular purpose. No warranty may be created or extended by sales representativesor written sales materials. The advice and strategies contained herein may not besuitable for your situation. The publisher is not engaged in rendering professionalservices, and you should consult a professional where appropriate. Neither thepublisher nor author shall be liable for any loss of profit or any other commercialdamages, including but not limited to special, incidental, consequential, or otherdamages.For general information on our other products and services please contact ourCustomer Care Department within the United States at (800) 762-2974, outside theUnited States at (317) 572-3993 or fax (317) 572-4002.Wiley also publishes its books in a variety of electronic formats. Some content thatappears in print may not be available in electronic books. For more informationabout Wiley products, visit our web site at www.Wiley.com.Library of Congress Cataloging-in-Publication Data:Patton, Wendy, 1964–Investing in real estate with lease options and “subject-to” deals :powerful strategies for getting more when you sell, and paying less whenyou buy / Wendy Patton.p. cm.Includes bibliographical references.ISBN-13 978-0-471-71836-9 (pbk.)ISBN-10 0-471-71836-X (pbk.)1. Real estate investment—United States. 2. Leases—United States. 3.Option (Contract)—United States. I. Title.HD255.P37 2005322.63'24'0973—dc222005001257Printed in the United States of America.109 8 7 6 5 4 3 2 1
ffirs.qxd 5/3/05 8:15 AM Page iiiThis book is dedicated to my mother who, in 1985, got me started inreal estate investing by giving me my first real estate course. It washer belief that real estate investing was the true way to financial freedom that led me to discover my future direction in life. She believedin me.I want to thank my husband, Michael, and my children, Brooke,James, Jacob, Rachel, and Sarah, for sacrificing without me duringthe time I was writing this book and especially during the many timesover the years that I was buying and selling real estate. Brooke andJames, my twins, were with me through hundreds of homes, when Iwas a single mother. Their patience was worth its weight in gold!I want to thank my sister, Jenny, who helped me with most of the editing of my book—for the many long hours she spent. Also, manythanks to Ron Cazier, Scott Teerink, John Hyre, Veronica Johnstone,Kris Mezsets, Amie Leszczynski, and Lyle Reichenbach, for your helpin editing and offering your expertise in different sections. I could nothave done it without you.
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ftoc.qxd 5/3/05 8:17 AM Page vCONTENTSINTRODUCTIONLease Options—Anyone Can Do It!viiPA R T 1AN INTRODUCTION TO LEASE OPTIONSAND SUBJECT-TO DEALSCHAPTER 1CHAPTER 2How Lease Options and Subject-Tos Workand How They Can Set You Up for FutureFinancial Freedom (FX3)3Success Stories of Buying on Subject-Tosand Lease Options18PA R T 2STEPS TO BUYING PROPERTIES ONLEASE OPTIONS AND SUBJECT-TO DEALSFinding Motivated Sellers for Lease Optionsand Subject-Tos31Lease Options versus Subject-Tos: Choosingthe Right Technique for the Right Situation44CHAPTER 5Evaluating the Profitability of the Deal61CHAPTER 6Negotiating the Deal: Steps to Buying onLease Options and Subject-Tos76Getting the Paperwork Ready for aLease Option Deal95Getting the Paperwork Ready for aSubject-To Deal110Advanced Concepts and Strategies forBuying on Lease Options and Subject-Tos120CHAPTER 3CHAPTER 4CHAPTER 7CHAPTER 8CHAPTER 9v
ftoc.qxd 5/3/05 8:17 AM Page viCONTENTSPA R T 3HOW TO GET REALTORS TOHELP YOU DO LEASE OPTIONSCHAPTER 10CHAPTER 11Building Rapport and Sharing Lease Optionswith Realtors135Closing Deals with Realtors150PA R T 4STEPS TO SELLINGPROPERTIES ON LEASE OPTIONSCHAPTER 12Finding and Qualifying a Good Tenant-Buyer161CHAPTER 13Getting the Paperwork Ready for theTenant-Buyer175CHAPTER 14Managing the Property and the Tenant-Buyer195CHAPTER 15Closing: The Big Payday207CHAPTER 16Advanced Concepts and Strategies forSelling on Lease Options212PA R T 5CREATING FUTURE FINANCIAL FREEDOM—FX3CHAPTER 17CHAPTER 18Business Organization for Lease Option andSubject-To Investments221Where to Go from Here: A Step-by-StepAction Plan232GLOSSARY245RESOURCES251INDEX253vi
flast.qxd 5/3/05 8:17 AM Page viiINTRODUCTIONLease Options—Anyone Can Do It!Fourteen-year-old John, with his father, attended a seminar that Ispoke at in Houston. During one segment of my presentation I usually teach the students how to call sellers directly out of the newspaper. When I teach this part of the class I often make live calls to sellersso that my students can hear how I speak with the seller and how Igather information to determine whether their home is a potentialcandidate for a lease option. On this day, however, I didn’t make anycalls—we simply talked about the best techniques for calling leads.The next day, while John was in school, he began circling the“For Rent” ads. After school he started making calls—with no callertraining—and he got a seller lead for a lease option who said, “Yes, I’dlike to consider it.” However, being only 14 and having no experience,he couldn’t and didn’t know how to enter into a legal contract. Heasked his father, “What do I do?”John ended up selling the deal to another investor in their localinvestment group for 500. He gave me a copy of his 500 check. Notbad for a 14-year-old kid and one to two hours of work. John immediately went on to develop a relationship with this local investor, and onhis next deal (while still 14!) made 50 percent— 14,000—of profit forhis assistance in the deal. He has since done additional deals formuch higher profits.How and why can a 14-year-old kid do this when most adultswould not? Fear! I believe that we all have fear of failure and/or fearof success. At 14, he was not afraid of failure. He just applied what helearned and tried it.You are never too old or too young to start investing. If you canvii
flast.qxd 5/3/05 8:17 AM Page viiiINTRODUCTIONdo the research and pick up the phone to make the calls, you are onyour way. However, many of us stop before we even get started because of our fear. We might have excuses like, “I can’t possibly dothat. It’s a young person’s game. It’s an older person’s game. No onewill say ‘yes’ to me. I have no experience. I don’t have a good voice. Idon’t have money. I don’t have good credit.” All are negative talk andincorrect statements.What’s going to make you successful in lease optioning or subjecttos is just taking the plunge. You’ll make some mistakes along theway, but so what? What’s the worst thing that can happen?John wasn’t hampered by fear and so was able to jump in, takethe plunge, and make things happen—setting his financial future inmotion. His example does not involve a huge amount of money, but it’snothing to sneeze at—it is a fantastic amount for most people and extraordinary for a 14-year-old. The money is important not only becauseJohn now can pay for college, but now he also has choices. If he continues on his path in real estate investing, he will have the chance to be independent and work for his own interests, unlike most of his friends.Choices imply options, including personal and financial freedom!For me, the most exciting facet of real estate investing is FutureFinancial Freedom—or, as I call it, FX3. Everyone has a different definition of freedom; for some it is financial, for others it means havingmore control over their time. Let me have one of my boot camp students explain this in their own words to you:Dear Wendy,Our financial future has literally changed within the pastcouple of months by applying what my husband and I learnedfrom your boot camp and, even more importantly, what we’velearned from your ongoing, personalized support—you trulyare the best! Keep in mind, my husband thought that I wascrazy when I signed us up for your boot camp and flew upfrom Florida to Michigan to hear you speak. It truly was thebest thing we have ever done. Please share my personal testimonial with your classes. I’m a believer, this does work!First off, I have to mention that when we attended yourseminar, we had just completed a 1031 exchange, which gaveus the great opportunity to start our investing career by buying three houses. Yes, it was so great having three houses sitviii
flast.qxd 5/3/05 8:17 AM Page ixIntroductionting empty and one with a renter that lived off of us for free!This renter was so nice she gave a whole room to her pet rabbits to roam freely in, after we had just rehabbed the house!During your boot camp we had a wonderful gatheringat your house, in which my name was drawn to purchase ahouse on a lease option. I jumped for joy like I had just wona prize. The next day, after the [beer] wore off, I figured outwhat I had just committed to—a house that is 1,000 milesaway, where it actually snows, the pipes freeze, and they havethings called basements! Yes, being from Florida, this is justwhat I’ve always wanted—not!We were up for the challenge, and you made it so easywith your support, along with the great contacts and helpthat we had from others who attended the boot camp. Notonly did we get a great purchase price and terms with theowner, but today we have a pending contract for a lease option that will cash-flow us 600 a month, and at the end ofthe 18- to 24-month term we will profit 107,400! Gosh, Iguess that will cover the cost of the class—truly amazing!When we came home from your class we decided “nomore renters.” We booted the bad renter out (and no, we didn’tkeep the rabbits!) and sold all of our houses on lease options.So on our three houses that had been sitting empty, we nowcash-flow 700 monthly and we will profit within 18 to 24months, 227,900!Now comes the best part. I finally put your class to thetest. I went out and found an owner who was willing to do alease option with me. Every realtor I spoke to (and many investors as well) told me no one in their right mind will do alease option with you in this market. The Florida market isway too hot. They are right, it is hot. Appreciation in some ofour areas is anywhere from 34 to 40 percent.But I got a gorgeous house that looks brand new, on alease option. I also got a killer deal on the rent at 950 amonth—normal rent would be 1,425! I put 5,000 down,which will come off the purchase price. They were asking 200,000 and it’s worth 239,000, so I offered them 210,000.The terms are 14 months, enough time to refinance it if I haveto. My new tenants bought it on an 18-month term. We willix
flast.qxd 5/3/05 8:17 AM Page xINTRODUCTIONcash-flow on a monthly basis 845 ( 500 of that will be applied towards the purchase price), and we are selling it for 299,900. That is a profit of 89,900. Amazing—is this forreal? I’ve since quit my job and I’m doing this full time.Thank you again, Wendy, for changing our lives!Debra and Eric LarsonWhy I Chose Real EstateDeal making may just be in my blood. I’ve always loved a deal, and theday I realized that real estate investing was that kind of game was themost important day of my life. My first house was a three-bedroombungalow in a suburb of Detroit. My principal, interest, taxes and insurance (PITI) was 438. I rented two bedrooms to two girls for 250each. (By the way, both women are very good friends of mine to thisday.) I had cash flow and I was living free! My 62 cash flow per monthpaid my credit card payment. I was 21 years old and I thought this waspretty cool! So I decided to do it again. I did it three more times thatfirst year. I had no money or assets, but I did have good credit.At the start of my real estate investing career, I was 20,000 indebt with student loans. In my mind, the worst thing that could havehappened was that I would go bankrupt. However, I had good creditand was able to make my down payments on homes with credit cards.It wasn’t long before I had a credit line of over 250,000—and toomany credit cards. Using credit cards should be the last resort formost investors, as I lost a lot of profit by having huge revolving creditcard debt—even though I faithfully made payments on all of themand somehow juggled them so that no payment ever slipped throughthe cracks. It was, however, an administrative nightmare. Still, Icouldn’t focus on that. I had to focus on what was the best that couldhappen: I could end up with freedom and choices!When I started investing, I didn’t know about lease options orsubject-to deals, and I thought what I did was a zero-down deal andsomething very creative. I didn’t know of any gurus at the time whofocused on buying on lease options, so I developed my own tools andsystems to buy homes with little or no money down, using the sametechniques I was using to sell. I have since purchased almost everycourse available in the market on lease options, and learned extra tidx
flast.qxd 5/3/05 8:17 AM Page xiIntroductionbits from them all to add to how I do my business. I am the only national educator in the country who teaches people how to work withRealtors to find these types of zero-down deals. Over the years I havefine-tuned the techniques that really work. I have completed hundreds of lease option contracts.I have bought and sold over 600 properties since becoming aninvestor in 1985. I have had as many as 175 properties in inventory atone time. My current and longer-term goal is to downsize to have 30in inventory, not including partnerships with students around thecountry. I have invested in several states and continue to look for newopportunities throughout the country and possibly internationally.Whether we leave a job to pursue our own dreams of becoming abaker, a pilot, an artist, or a Realtor, we all have the same concerns andfears about starting out in a new business venture where we have to relyon our own efforts to make a payday. The first couple of years can berough. It takes a while to pay your dues in any new skill—and dealing inreal estate is a skill. But real estate not only has immediate profitsthrough lease options, it can also automatically provide investment income by the very nature of appreciation. This appreciation factor isn’tbuilt into most other self-employment situations. Real estate builds atangible future that can set you up for life if you have the passion andthe drive to dig in and overcome your fears of trying something new.Wendy’s Advice on When to LeaveYour J.O.B. (Just Over Broke)If you want to pursue real estate investing, and in particular lease optionsor subject-tos, I don’t advise quitting your job and starting with nothing. Instead, I offer two pieces of advice:1. It is best to start this business while you are still employed at your current job so that you won’t have to worry about receiving a paycheckwhile you are learning the business.2. Begin to build a second income that can eventually replace your primary income when you are ready to leave your job.Too many people leave their jobs too early, only to find out they have to goback or can’t survive without the income. Don’t make that mistake.xi
flast.qxd 5/3/05 8:17 AM Page xiiINTRODUCTIONI am so glad I pursued my dreams in real estate many years ago.When I left corporate America in the mid-1990s to pursue real estatefull time, it was the best career move I had ever made. It has given mefinancial freedom. Do you want to be free? Real estate can give youFuture Financial Freedom (FX3) too!This book shares my secrets and strategies with you. I suggestyou try them all and decide what works best for your personal styleand your specific area of the country. As you find your niche, you willperfect it. Real estate investing changed my life and it can changeyours, too. May lease options, subject-tos, and zero-down strategieschange the way you think and help you live out your dreams so thatyou may have all the choices and freedom you desire!xii
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ccc patton ch01 3-17.qxd 4/27/05 2:10 PM Page 3CHAPTER 1How Lease Optionsand Subject-Tos Workand How They CanSet You Up for FutureFinancial Freedom (FX3)What Are Lease Options and Subject-Tos?Lease options and subject-tos are ways to purchase real estate, usually with very little or no money down, sometimes even with moneyback in the investor’s pocket. Sound too good to be true? Well, it isn’t.Can an investor end up with money in his pocket and not have to put10 to 20 percent down to purchase real estate? Yes. These techniquesare used commonly today by successful investors. This book willshow you how to find motivated sellers and homes that you can purchase with little or no money down—truly the fastest way to FutureFinancial Freedom (FX3).A lease option is a strategy that gives an investor the right tolease a home and also the right to purchase the home during or before the end of the lease period. An option is a contract that gives itspurchaser the right to exercise a privilege. In the case of real estate investing, it gives the investor the right to purchase property during acontracted period of time. It is a technique that involves gaining control of a property without the added burdens of ownership. All moneymade in real estate is made by controlling property. Owning propertyis the most obvious way to control it, but control is possible without3
ccc patton ch01 3-17.qxd 4/27/05 2:10 PM Page 4AN INTRODUCTION TO LEASE OPTIONS AND SUBJECT-TO DEALSownership—and control is what brings in the money. It was a dyingJohn D. Rockefeller who shared his secret to achieving great wealth:“Control everything, own nothing.” All of the most successful real estate developers today utilize options.A subject-to is a technique by which the investor gains the titleto a property but doesn’t have to get a mortgage on the property he isabout to control. The seller keeps the mortgage in his own name butdeeds the property to the investor. It is deeded to a new owner “subject to” the existing mortgage, which stays in place with this technique. The mortgage company isn’t usually made aware of the changeor asked about the change. The new owner just starts making th
real estate investing by giving me my first real estate course. It was her belief that real estate investing was the true way to financial free-dom that led me to discover my future direction in life. She believed in me. I want to thank my husband, Michael, and my children, Brooke, James, Jacob, Rachel, and Sarah, for sacrificing without me during
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ON REAL ESTATE INVESTING SYMON HE, MBA, is an author, best-selling real estate investing course instructor, licensed real estate broker, investor, and consultant based in Los Angeles. His training courses in real estate investing, deal structuring, and financial modeling have reached over 250,000 students in nearly 180 countries.
Investing in real estate / Gary W. Eldred.—6th ed. p. cm. Includes index. Rev. ed. of: Investing in real estate / Andrew J. McLean and Gary W. Eldred. 5th ed. 2006. ISBN 978--470-49926-9 1. Real estate investment—United States. I. McLean, Andrew James. Investing in real estate. II. Title. HD255.M374 2009 332.63 24—dc22 2009023124
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A profile of today's real estate investor Investors favor real estate for its growth potential. Today's real estate investor remains optimistic about their real estate investments. Investors hold on average 2.2 types of real estate investments, with the two most popular choices being direct purchase and owning real estate
the first 7 d (ASTM C 1702 (7)), semi-adiabatic calorimetry for 3 d (10), compressive strength (ASTM C 109 mortar cubes (7)), and autogenous deformation (ASTM C 1698 corrugated tubes (7)). Compressive strengths were assessed at the ages of 1 d, 7 d, 28 d, 56 d, 182 d, and 365 d on cubes that were demolded after 1 d and subsequently stored in water saturated with calcium hydroxide. Autogenous .
