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Perseverance Payoff: $8,000

by Scott Smith, Alaska   

I would like to take the opportunity to share my first success story with my fellow investors. It is a story of how I did a lease option with a military transfer. Having been in the military myself for the last fourteen years, It didn't take long for me to believe the transfers would be motivated, once I learned about lease options from Joe Kaiser.

I went to the housing office at the post I am presently assigned to. Nothing different than I had been doing for the last three months. I go there on a regular basis and look in the three-ring binders to find any new flyers the transfers put there. At most of the posts I have been to, that is how it is done.

Once I find a flyer I know the chance the property is highly leveraged is very good. With the VA loans and the "no money down" programs this is almost always the case. With all the latest flyers in hand, I head home to use my CD to see if I can get the name of the owner if it is not on the flyer. Nine times out of ten, all the information you need is right there on the flyer.

On a few occasions I have had to go to the tax assessor's office to get the names. Once I have the names, I send of a letter--one that will test the motivation and get them to call. On this specific one, the seller called back. As luck would have it, we were both extremely busy with military commitments.

First, he said he had a long time before he had to move, but openly admitted his house was highly leveraged. He was very realistic and took little convincing that he had few choices, but he said since he didn't have to move immediately, he would like to try and sell.

Being as helpful as I could, I gave him my number again and offered to send him some information. The next day, I sent him a nice follow up letter and some more information about the "lease option."

Sometime in late December, he called back telling me he would like to get together and chat about how a lease option would fit into his plans. Knowing he still wasn't due to move and his motivation was not peaking, I made up a reason not to go.

Luck being on my side, I had to go out of town on a deployment in early January. My unit went to Texas to do some work for two months, and I returned home in early March.

In April, the seller contacted me again to see if we could get together on the specifics of a lease option. I told him I would be there the following week. At that time he informed me he would be going to the east coast for some training for the next month. I said, "Okay, call when you return."

When he got back, we set an appointment. By this time it was late May, six months from my initial contact. When I met him at his house, I learned the meaning of the word motivation. A meaning all the talking and reading posts, articles, and books cannot make you understand.

Before I could even start the man said, "I just don't want to lose any money on my house!" I knew I could help. To make a long story short, that night I was not quite as convincing as I could have been. The man did not sign the deal and said he wanted to discuss it with the military attorney. The ones the military trains and provides for FREE. I just knew that deal was ruined.

A couple of days later he called back, said the attorney liked the agreement and wanted to do it. I jumped in my vehicle and went to sign it up. Although "option consideration" was never mentioned, I gave him $10 to bind the deal. Now, the numbers going in:

$10 option consideration
$977 each month (the mortgage payment)
$125,900 purchase price
Six years control (twenty-four months at a time)
Five-year-old house in great shape with appraised value of $128,000
Payments start in September.

It was now June 15th, and the seller was due to leave on the 29th. I (making the newbie mistake) immediately put an ad in the local paper. I say it was a mistake because I had to deal with the seller still being there and asking him to "come up missing" on the weekend because I got so many calls. Luckily he agreed, and it all worked out.

So I found a buyer with some money who would move in on July 2nd. The buyers numbers were as follows:

$3,000 option consideration
$1,150 each month ($173 positive cash flow)
$135,000 purchase price
One-year option with the right to renew for ONLY one year if all terms are met. (They can renew for a non-refundable fee of $250.)
First payment started in July.

The story does not end yet. I'm about to transfer to Alaska. During recent discussions in the chat room, my good friend Jim Piper, impressed upon me how I may want to consider cutting down my risk, since I would be an out-of-state landlord myself. It didn't take long for me to come to my senses and see I should do just that.

Disguising my visit as a follow-up to see if the new buyer got in with little problems, I returned to the property. During our discussion I mentioned that doing these type of deals could be rather lucrative from an occupant's position as well as from the investor's. The buyer immediately stated his agreement. I got my calculator out and showed him what type of spread he could have if he only had more time to let some equity grow.

For some reason my calculator did not stop until around the six year mark. The buyer was wondering if the seller might consider the possibility of a deal like that. I said he sure would...that is what he agreed to with me. The buyer's jaw hit the ground. I said, "Yup, he sure did. AND, I am willing to sell it to you."

The buyer and I came to an agreement: I would assign it to him for another $3,000. Being the type of guy I am, I did not want to put the buyer in a real tight bind and agreed to take the $3,000 spread over three months. He signed a promissory note for three payments of $1,000, September through November.

The final numbers:

$3,000 option consideration
$1,150 July payment
$1,150 August payment
$3,000 promissory note

$8,300 Total

Minus $10 option money
$83 advertisement
$105 contract collection setup fee
$9 Memo of Option recording fee

$8,093 Total Net Profit in four months. Oh, by the way, I borrowed the $10 from my wife!

 
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