What You Missed September 2016 General Meeting
by Rob Earhart
Making Money With Options
September 6, 2016
Jack announced that he and Mark Warda are putting on a Land Trust Seminar next month and explained that Mark is a trustee for 1600 different trusts.
Florida has the best statutes; they cite that the trustee and the beneficiary are not liable, so it’s a way to conduct business safely. Trusts have been around for many years and in all states. They are easy to set up and at our class we will cover all aspects on October 15th. The Florida Trust book we are using is the 10th edition and we use it every day.
Personal property trusts are different and used for cars, mobile homes, stocks, etc. Trusts are valuable to keep us out of harm’s way and keep things out of our name. They also transfer ownership upon the death of the beneficiary without going through probate.
“We will fill out a trust and a deed in the classroom so you can do it over and over from the cd,” exclaimed Jack.
“The next day we will be doing the lease option class,” professed Jack, “This is a way to control a lot of real estate with a little amount of money.” I started doing options in the 80’s and found it did not take a lot of money or a lot of intelligence.
After a few years, I would go to a meeting to find someone who wanted to get rid of their headaches. I would lease option the property and take care of maintenance, renters, etc. I did 80-some options, 50 in one year, and kept up with all the payments. The sellers were happy and I was happy to take in the money.
After 15 years without taking title in my name, I decided to buy one to live in. “I lease optioned it,” he said.
Options are well-documented and have stood up in all the courts. I always had to see what the situation was in order to see what to purchase with an option. A person would not come out of pocket to sell a house, so I had to cover real estate commissions, taxes, etc.
In 2005 and 2006, we had tenants buying houses even though they were marginal tenants and we may not have even liked them. There were liar loans, low interest and no interest loans, etc. Then things came crashing down and people were losing their homes all over the place.
Now we have foreclosures dropping, and prices went up 35% in the last few years. “If you think we are in another bubble, what’s the best way to buy now?” asked Jack. “Options.”
Back then a $200,000 house went to $100,000 and they still owed $190,000, so they either kept paying or stopped and we had a lot of foreclosures. If we had an option on a $200,000 house and the price went to $100,000, then we can say that we are not going to be able to close on the option. The seller can then take back the keys, or lower the price.
There were a lot of bankruptcies and those people are now prospects for housing at a higher rate, since they cannot get a bank loan.
Options are exchangeable, i.e., with a 1031 exchange. If I get a judgement against me, they cannot attach options and the property is protected from personal lawsuits. One of the things I like about options is there is no risk. “If it burns down and Sam owns it, I’m not the guy. If it goes up in price, I’m the guy,” beamed Jack.
A $100,000 house appreciates 3.5% so I had $3,500 a month appreciation. On 80 houses that becomes a lot of money that I made when I bought the homes.
National Association of Realtors says that 65% of the people want to own a house, but only 45% can afford to own. When we sell it to them with lease options, the tenants like the house and take care of it.
“I evicted a tenant in Dunedin and he took me to court. The judge said the tenant had an interest in the property because of the option and I had to foreclose. It took about a year,” informed Jack. “So I sat down with Mark Warda to see how we could avoid this issue and came up with a contract for option. Once the tenant makes the 36 payments they can exercise the option, or extend it. If needed, we can evict them with ease and less hassle. All this is in the class and the book,” he said.
We found that we could convert 75% of the tenants to buyers. We would clear them with a mortgage lender and find out who could afford it and sold them. Our options were for 5 years and in that time we could build a $50,000 equity and 1031 exchange it into another property, all without ever owning the property.
The 25% that could not buy the house was because of divorce, moving away for a job. When they moved we found new fencing, tile, countertops, fan kits, etc. They also did not damage the house and the house was in good shape. We ended up with a better home.
Our lease options credit the first and last and $100 per month accrued so when they bought it they would have the 3% down payment for an FHA loan. Some did not have to bring money to the table.
“We can show you how to put your IRA money in your corner bank and all monies come back to you, not the custodian. You can do deals more quickly and easily by writing the check yourself,” exclaimed Jack.
He then encouraged all to check out his and Mark Warda’s classes and sign up.