How to Handle a LEASE PURCHASE Deal with an UNMOTIVATED Seller

Start dangling reality in front of him when he's telling you he's all set to leave it like that. Okay, any interest costs you think you get, it's going to get eaten up by insurance. And if you had a claim, you're really screwed.

I have a question about lease purchase. So when a seller has a mortgage, we do lease purchase. Who gets to capture the depreciation, mortgage, I don't know, expenses on the property? Do we report those as expenses and depreciation, or does the seller? Don't do that because the property is still under his name.

The seller. Seller gets that.

That'd be the seller. Follows the deed, really.

Oh, okay. So it follows the deed. Okay, good.

You'll have a notice of option, right? You're going to cloud the title, but they still get the benefits of owning the home.

I see. Okay. So it follows the deed.

Good.

Okay.

That's why those are more costly, guys, when you cash them out, opposed to you owning it. For a lot of reasons, right? Just answer that question.

Okay. I'm planning on going to see this property, but the seller is not going to be there. He had already moved to California. So there's a lockbox on it, so I can go pretty much anytime, but he has a Property manager who is listing it for rent right now. Initially, when we talked, he said, oh, this is probably not going to work because I already moved out to the West Coast. But I don't think he has completely ruled it out yet because he asked me a bunch of great questions. And I told him that, hey, I can just go see it. But since I can't meet him at the property, Do you think it's still a good idea for me to get one of you guys, one of the coaches, to give him a call while I'm there?

So you'll be there, but he won't? We're going to call him?

Yeah, he won't be there.

I say wait until you get back and then we set up a Wait until he gets back.

Yeah, I'll be back.

No, wait until you get back from the appointment.

Oh, sorry. Okay. Oh, I thought you meant wait until he comes. Uh, yeah, okay.

When we call and you're there, it's— we prefer to have the seller there, to be honest with you, Wendy, just because we're all kind of on the same page. You know, they're, they're looking at you while we're talking to them and So it's a lot better that way. I don't know, Chris, if you have any thoughts on that.

No, I agree 100%. There's no rush to— Yeah.

Okay. But then we have this property manager and I guess he's trying to rent it. So how do we do this? If he said, hey, okay, I want to go ahead and do lease purchase, does that mean that he would to cancel his agreement with his property manager.

Yes.

Yeah, just like, that's his issue, not yours. He'd have to cancel it.

Okay.

Is he expecting you to co-market it with this rental guy?

He didn't say that yet, but I think he's still deciding whether he should go ahead and rent it for a year and then sell or maybe just go with a lease purchase. So that's what he's debating. I had already reached out, asked him to send me a copy of his most recent mortgage statement. I'm still waiting for him to send it to me.

3 things come to mind there, and you may have already hit him on this, but no particular priority order. I would go over with him, one, you got a management fee. 2, you got Maintenance, repairs, eviction, etc., risk. 3, who knows what's going to happen with the election? You could have a lower price next year. So all of those get mitigated by you dealing it with us, Mr. Seller.

Okay.

Yeah.

Okay. Thank you.

Good points, Chris.

Once in a while, Judy.

He was like, oh, that was really good.

Uh, Wendy, how much is the house and is there a possibility to pivot to an AO if that needs to be?

Um, I think the price range is a little bit on the lower side to pivot to an AO. Last time it was listed for $399,000, so $400,000.

All right, no worries. Cool.

Oh, Russ, are you thinking like to compare it to landlord, to dangle AO and sale?

Yeah. And you know, she's in that area where it could be higher end, you know?

Yeah. I mean, I did a lot of AOs in that area too, so you could do both. Let him pick. Be honest with him.

Okay.

He chat Wendy on a piece of paper or whiteboard or whatever farm. If he's traveling, and show him the difference between a sandwich and an ale, just like the video.

Okay.

Okay. I also have another question. I had a seller who, I don't think he, when I explained lease purchase to him, he misunderstood. So when we got on the second call, because he wanted me to go see the property today, But this house is over 2 hours away, so I wanted to make sure that he's a little bit more motivated before I go.

Mm-hmm.

So we jump on a second call and he said, oh, I was under the impression that because I have $300,000 in equity, you're going to pay me an interest on my equity. So I didn't know how to And I explained that to him that, hey, we don't do interest on a lease purchase. Sometimes we do owner financing, but not on a lease purchase because you still own it. It's just too risky for me to do that. And he was like, so you're asking me to use my house, I don't get anything, and basically I'm loaning you $300,000 for nothing. I get that money back in 4 years? That doesn't make any sense. So I'm just wondering what's a good response to that question.

I mean, you could do interest on the equity, just buy it sub-2, and then you guys agree on a payment on top of that. I don't know if that would be beneficial to you.

But no such thing as interest. You're not taking a loan out. I mean, script-wise, Wendy.

Mm-hmm.

Well, a couple of questions. Firstly, he doesn't sound motivated, but questions would be, how much is the mortgage payment? Is it relatively low proportion to the price or is it about right?

It's a little bit on the lower side, but it's not too low. He's not very motivated even though he has already moved.

Yeah.

He can afford the payment and he preferred to get it cashed out. But he, at first he was open because he was thinking that he was going to get an interest on the equity, so he will make more money over time. But then after—

That's his point. If you buy it. So if you were him, I'd say what you just described is me buying it. There is no interest if I don't buy it. There's no note created. I'm just protecting your full equity. If you think you could do better, wait and wait. But this is for people that want to maximize their equity and want closure.

So we do— I guess I didn't know this. So if we buy on sub-2, potentially we could pay an interest even though there is still a loan in place.

You can pay anything you want to anyone on any deal, right? It's just that the numbers work. There's no steadfast rules. You got to keep the box wide open.

Yeah, Wendy, the payment is— yeah, Wendy, the scripting on that is great point. Mr. Seller, the sellers that we buy from, again, you got to create that authority. The sellers that we buy from, they want to maximize their money. But they're okay with waiting for their money, right? So hypothetically, Mr. So-and-so, if you were to sell today, there's costs involved and you're not going to get your full equity, right? You're going to get, you know, -5 to 15% on the front end. We're going to capture all the equity you have today and we're protecting that equity until we cash you out. Sounds like this is not going to work for you. And then you want to pull back as far as, as quickly as possible. Sounds like, sounds like you're wanting or all needing your money today. So if it doesn't sell, what are you going to do?

Yeah, there's another piece that Rusty made me think of, so I pulled my calculator out. How long is this thing going to sit?

He took it off the market and he took it off the market recently and he's going back on the market very soon.

So how long has he been marketing or off market without anyone in there?

I think it's been about 3, 4 months, but he doesn't sound that motivated. He's okay waiting. So he's not in a dire situation.

Okay. No, right away I knew he wasn't motivated just by how he answered you. But I'm asking you that because even if you get 5% on his money, I'm just throwing that out for a round number, that's $15,000 a year. He's coming up on half a year soon. only gotten 10 cents. I mean, so if you paid him 2.5% interest, he's about where he's going to make this year. You know what I'm saying? So you got to play around with this a little bit. He doesn't sound motivated. So he might be just kind of—

Would you put an AO on that one?

If he's not motivated and doesn't mind dealing with it and wants to maximize his money, an AO is a no-brainer.

Hmm. Okay.

Say, look, I'll step away. You want interest? I can't. There's no such thing in a lease purchase. But let me show you how it works to be even more lucrative than interest. I step away and this is the best for you if you don't mind dealing with it.

Hmm. Okay.

So what, Wendy, what area are you in?

What was that?

What's it?

It's in Warrenton, Virginia. Okay.

How cold does that get in the winter? Because winter's coming.

Oh, yeah.

Anything else?

For me, it gets cold now. I mean, it's cold enough for me.

It's a vacant house. Things happen when it gets too cold.

Right. Okay.

But Wendy, don't be afraid to pull it away because he doesn't sound motivated yet. And he might be comfortable and cocky about, I can wait. But how long is he going to wait with an empty house?

Yeah. Okay. I already tried to pull away, so I'll just give him a call. He told me he's going to relist it soon, so we'll see what happens if it sells.

Yeah, exactly. And what it does, what is he going to do if it doesn't, right?

We got to ask that.

He said he's okay letting it sit.

Isn't that an insurance risk? Like, don't insurance companies not like to have vacant houses?

Yeah, he can't have vacant forever. Yep. Spot on, Judy.

I'm sorry, Judy. What did Judy say? I didn't hear that.

Vacant insurance, they're going to go up at some point.

Oh, okay.

Because, Chris, and if that's the same thing with the guy you and I talked to that wasn't motivated the day I used you calls, that I've been talking to for over a year, the guy was Steve. And then he's like, oh yeah, call me back in 6 months.

I also think you're going to have an issue when he'd have an issue if he had a claim.

Okay.

It's unoccupied, nothing in it.

If he doesn't tell them it's occupied, that it's vacant, they may— they might not pay the claim, right?

Yeah. So start dangling reality in front of him when he's telling you he's all set to leave it like that. Okay. Any interest costs you think you get, it's going to get eaten up by insurance. And if you had a claim, you're really screwed.

Okay, thank you.

You know how you handle that, Wendy? Just say, oh, so I'm assuming you notified your insurance company. If he says no, then you act like you didn't, you didn't tell him. Like you got to act surprised.

Okay.

So then you took back control of the conversation, right? By doing that.

Okay.

Now Wendy's the authority, not the seller.