Expert Shares About Lease Options in Current Market
Guest Speaker: John Jackson
Often referred to as the “King of Lease Options,” John Jackson is considered the nation’s premier authority on real estate lease options.
Numerous other nationally recognized real estate educators refer their students to him to learn his groundbreaking lease option systems.
Since launching his lease option company Leasing To Buy® in 2003, he has facilitated over 650 lease option transactions – and his students have in turn done hundreds of lease option transactions as well. He is also the only educator that teaches Texas Lease options; numerous real estate attorneys refer to John for education and training on the subject.
By utilizing his lease option strategies and systems, you can also create a very successful lease option business, or add a powerful and useful tool to your real estate toolbelt.
John has been featured on FOX, NBC and multiple podcasts and radio shows, in addition to his inclusion in a #1 Amazon bestseller called “Real Estate Rockstars.”
What you’ll learn in this episode:
- Though John has done some wholesale deals over the years, he has almost exclusively worked in lease options since starting his company Leasing To Buy in 2003. He has done well over 650 transactions, mostly working with “pretty, move-in ready houses.” Price-wise, they run $225,000/$250,000 and above. His full-time business includes both real estate and his speaking education.
- A lease option is a lease with a separate option to purchase. Lease options are used in all aspects of real estate. They got their start in commercial real estate where someone would lease a property but had the option to buy, say a warehouse. In residential real estate, the buyer has the lease and is leasing the property but has the option to purchase it. The best part is there’s no risk because there’s no capital required and doesn’t require a loan. You also don’t have to estimate repairs.
- John defines an assignable lease option. In this case, the lease option is silent. It’s also called flipping lease options or wholesaling lease options. The lease option assignment is where you are working with the homeowner and setting the terms of the lease option, as far as the price. You’re offering full price for the property, saving the monthly payment. Once you have everything in place with the owner, you market that contract to the end buyer, which is typically a person or family that needs time to get financed. You assign your contract to that end buyer. They pay your assignment fee, typically 4-5% of the price.
- With a wholesale deal, you negotiate the price as well as you can, tie it up with a contract and then assign the contract to the end cash buyer. With a lease option assignment, you’re not negotiating. The owner’s getting full price. This is how you can get into real estate where you’re not making payments on a house. You’re essentially flipping papers.
- John likes to provide free information and education, and share information on case studies. He shares a recent example of a current deal. In the Ft. Worth area, he had a homeowner who had their vacation house on the market for over 60 days. When people have their house on the market a long time, they become desperate – not enough to do a wholesale, but they start looking for Plan B. In this case, the homeowner received one of John’s mailings, contacted him and he explained how the lease purchase works. How she would get full price without paying commission.
- John continues the story. She agrees to the numbers he puts together, and they sign contracts. His company starts marketing the property that she has as a lease purchase to their buyers or end clients through their channels. An end buyer came long via their online marketing. He had tried to buy a house, but as an independent contractor who had been self-employed for less than a year, he couldn’t get a loan. John assigned the contract to him. He paid a $12,000 assignment fee. Both the owner and buyer were very happy with the deal.
- When he does live speaking, John talks about the levels of desperation. He mentions typical scenarios like for sale by owner, for rent by owner, MLS, for lease, etc. Usually owners of homes they want to rent by owner fit into one of two categories. They’re either an investor renting the house or have a small portfolio. OR they may be an accidental landlord, which is someone who tried to sell their house and could not so they have it up for rent. “That’s where we come with the lease option and say, wait a minute,” John says. “Renting is way down the road. You can do a lease option, get full price, and instead of a renter, you get someone who is in the process of buying.” A buyer would do this in cases where they’re not quite to the point of finance.
- The buyer typically pays John’s company 4-5% with their assignment fee, which goes towards their down payment as required by the FHA. On high priced houses, it’s more likely that the buyer needs more time to accumulate their down payment. They may want to get some things in place if they’re having to get 5-10% down.
- John discussed the other types of lease options. The lease option assignment is what he focuses on with leasing to buy when he teaches his students. Another type is a straight lease option. Instead of renting it and having another tenant, you decide to lease purchase. Or offer a lease option where you’re going to get a deposit of, say 4% down – which translates to $8-12,000 down, non-refundable. The straight lease option involves no middle man.
- The third type of lease option is called a sandwich lease option. It’s where the investor is sandwiched between the seller and buyer. The sandwich lease has three profit centers. The investor negotiates with the seller to get as low a price as possible and as low a payment as possible. He secures that with the seller and turns around and markets that property as a lease option on the back side. On the lease option he markets, the price and the monthly payment are going to be higher. The investor is getting a nonrefundable option fee from the buyer and getting that cash flow, and with that the buyer cashes him out. The investor has his equity spready between what he’s contracted with the seller and what the buyer’s contracted for.
- When it comes to real estate, John always suggests looking at the least risk amount. That’s the lease option assignment because you’re not responsible for making any payments to the owner.
- John’s buyers get a home warranty that they pay which covers repairs and damage from natural disasters. If something breaks, they don’t call the seller. They call the 800 number and pay the $65 service call fee.
Before he got into real estate, John was a stay at home dad who made money as a day trader and options trader for two years. - According to John, the real estate market has been pulling back a bit. While some in single family residential homes sell quickly, that’s the exception, not the rule. In the Dallas-Ft. Worth area, houses over $300,000 are starting to feel the market soften. He and his company benefit because in this kind of climate, they’re able to secure these properties under lease option contract more quickly and easily than when the market is hot. As the market softens, there are more opportunities for such “Plan B” deals.
- Many people in Texas are under the impression that lease options are illegal in Texas. The law they are referencing passed in 2003. John says a lot of the confusion comes from rumors. This type of misinformation comes from online real estate forums, and he strongly suggests that one should never go to one of those looking for legal advice. The truth is, lease options are totally viable in Texas. You have certain verbiage and disclosures in the contracts. But you cannot do a sandwich lease in Texas, per the law, because the seller has to have what is called the fee simple title. Feasible title is absolute title, the purest form of title.
- John offers various resources, including tons of valuable information and training videos, on his website www.LeaseOptionClasses.com. The site also has free downloads, including customized property lead sheets and an info sheet to give if you’re using a V.A. on how to talk to sellers. They also show a step by step deal that is currently happening.
- There should be two separate agreements for a lease option assignment – a lease agreement and an option to purchase agreement. His office has those in a single PDF file.
- John explains to a listener the difference between the lease option assignment and a straight lease option. The straight lease option is when you don’t go through a third party. The lease option assignment is where you’re the investor and you tie up a property with a seller and then assign it to the end buyer. Once you assign it, you’re out of the equation.
- John says, “You’ve got to have the right contracts. You’re only as good as your contracts.” His contracts clearly state that the option fee, aka the assignment fee, will be applied at the time of finance towards funds to close.
- John says that 98% of his buyers get financed within a year. For those who can’t or who suffer financial setbacks, they are still on the hook for the lease agreement. If they default on the lease option assignment, at the end of the day, they seller would just pursue them as if they were a regular tenant.
- You can do these deals remotely. Of his 650 lease option transactions, John says that he did not see the property or meet the sellers or buyers. But by working in your own backyard, you get the hands-on experience of the process which will help you train others to do it. He suggests starting in your own backyard for the first few, and then you can feel free to start doing them remotely. You can also systemize the process where you use V.A’s to do the marketing for you.
Resources:
Grab a FREE Copy of Lance’s Best Selling Book, How to Make Big Money in Small Apartments here.
Get Access to Lance’s Best-selling Small Apartment Wholesaling Course here.