Do Realtors invest in Lease Options?

[rvolk75]

Hello everybody,
I'd like to know if any of you Realtors out there invest in lease options. Seems like all the books and tutorials are geared towards unlicensed individuals, but as a real estate agent, how do you ethically invest in lease options?

If I found a property on MLS that I think might be a good deal for a lease option, how does commission split works? How does the listings agent get paid? How will my broker get paid? Is it even allowed?

If you're a licensed real estate agent and you do invest in lease options, please share your experience.

I appreciate your feedback in advance.

[BuyHawkeye]

I bristle at the over-used word "Ethics" as pertains to Realtors. It cheapens the word and its important meaning. Having said that, can you be more specific in your question? I am a bit confused (nothing new there).

Personally, I own several properties that are set up as lease/options. The key word towards the "ethical" side is "Disclosure." All of my contracts state: "All parties acknowledge that the Seller is an actively licensed real estate agent in the state of Georgia."

As far as commission split (the part that has me confused), it depends. What is your part in this investment plan? Are you buying the properties for yourself, a client?

Lease/option contracts in my area, commission is paid at the final closing less the amount paid up front to the Broker at the start of the lease. The up front portion is subject to negotiation.

Hope this helps a little. Expand upon your question and I will try to do better.

[rvolk75]

I appreciate your response.

Here's what I want to do. I would like to start finding properties on MLS that are for rent and for sale at the same time and acquire a property as a lease option and do a sandwich deal. I don't want to purchase it, just lease it with an option to buy and meanwhile, find a tenant/buyer who will lease it from me.

Here's a sample scenario:

Type of house: single family home
Currently for rent: $1,600 a month
Currently for sale: $250,000

The property is currently on MLS, listed by another brokerage. The commission paid is 1/2 of 1 months rent, which is $800. The seller is desperate and has lowered the price twice in the past 2 months (both rent and sale price). Right now the sale price is about $10,000 below the FMV.

I would like to contact the listing agent and talk about the lease option, but I'm not sure how the commission would get distributed. Also, since I'm licensed, what do I have to look out for?

Seems like individuals who are not licensed, have less expenses. If there's an article somewhere that explains how to do lease options when you're licensed, I would greatly appreciate it. And if you could provide a sample scenario of a deal when it involves 2 brokerages and MLS, that would be fantastic.

Again, thank you so much for your advice.

[Dan Connolly]

For a lease purchase, I think it works like a regular sale with the closing one-two years out (or however much time is negotiated for the closing). You get the regular co-op commission split when it actually closes and the rental commission when it leases. If it never closes you never get the commission.

For a lease option you would get the lease commission when it leases and the sale commission only if the buyer ever excercises his option and purchases.

[rvolk75]

Thanks Dan.

Is there anything I should look out for because I'm licensed? When I want to lease option it to a buyer, is there anything I should look out for?

Again, thanks for the feedback.

[Dan Connolly]

Are you the owner of the property? If so you have to disclose that, otherwise I think it works the same way a regular sale works, disclosures, lead based paint forms etc. If its a lease purchase I would negotiate price and inspection issues at the beginning, a lease option would negotiate price at the beginning and do an inspection if and when the option is exercised.

[rvolk75]

Thanks Dan. Many people are saying that being licensed has a negative impact on investing in real estate. I just want to know what are some of the things that I need to look out for, so I can stay out of trouble, just in case.

My broker is not familiar with lease options and it's something that I want to pursue, so I appreciate the feedback.

[rvolk75]

Here's another question.

Once I enter into lease option agreement with the seller, right away I'd like to place an ad in the paper that the house is available for rent-to-buy. In the ad, do I need to disclose that I'm licensed and display the name of the brokerage?

[BuyHawkeye]

Russell:

Thanks for the clarification. I understand what you are doing and am familiar with this scenario. Do you have experience doing this (not as a licensee)?

Take what I am about to say with a grain of salt as I don't intend to be rude:

This is the same "No-Money down" investment scheme that a lot of the self proclaimed gurus are promoting at seminars and in print. As you suspected (and correctly), it is a breeding ground for slimy deals. The Seller is often left unprotected and at risk for default when you can't uphold your implied promise of relief to cover his mortgage.

Technically, you won't be at fault when you can't find someone to rent the property and/or follow through with the actual purchase by the option's expiration date. However, a somewhat sophisticated Seller who has otherwise fallen upon hard times will be able to go after your license by questioning your conduct during the contract. Maybe they will be successful, maybe not.

Frankly, I think you might be better off starting up a rental management company that collects and upfront fee and a monthly premium in exchange for services rendered. The proposal that you are working on has no value-added that a rental manager couldn't otherwise provide for the Seller.

Having said all that. Since you don't own the property or hold a material relationship with either party, you have little to disclose to the Buyer or Seller. However, if you advertise the property, you must obtain the Seller's permission and (unless your state is different) advertise that the listing is held by your broker.

[Homesurfer]

This is the same "No-Money down" investment scheme that a lot of the self proclaimed gurus are promoting at seminars and in print. As you suspected (and correctly), it is a breeding ground for slimy deals. The Seller is often left unprotected and at risk for default when you can't uphold your implied promise of relief to cover his mortgage.

I just thought that deserved to be stated again.