Wednesday, September 01, 2004

Reader's Questions

I received this email today:

Hi, I read your post on how you did the lease purchase. I looked at your website and have a couple questions for you if you don't mind. Why did you go through a hard money lender and then turn around and refinance through a regular lender? Why not go conventional to begin with? Also, you used a realtor to find you a buyer/tenent...did you have to pay 6% commission or how did that work? I do appreciate the info on exactly how you did your deal. Very helpful for those of us just getting started. Thanks - Paula

Thanks for the kind words. I went with a hard money lender for speed. This property was purchased through a foreclosure auction and, in Arizona, if you win a property at the foreclosure auction, you have to pay for it, in full, within 24 hours. A conventional bank loan just cannot be done that fast.

As for commissions, I would have had to pay 6% commission had the tenant bought the property. However, he did not. This was the deal my Realtor and I worked out. See my post here for more on that. If you go the lease option route with a real estate agent, make sure you are very clear on what will happen if the sale does not happen. The majority of lease options do NOT result in a sale, so it is important to plan for this to avoid disputes later. Explain to the agent the benefits of a lease option to an investor and why an investor would hope for a lease option to not sell. Make the agent feel like he or she is part of your investment team.

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