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The Complete and Authoritative Guide to The Cooperative Lease Option and Getting Past Analysis Paralysis By Adam King www.CooperativePurchase.com
Disclaimer This manual is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the author or publisher is not engaged in rendering legal or accounting services. If legal advice or other expert assistance is required, you should seek the services of competent professional counsel. The materials in this manual are provided “as is� and are not warranted in any way expressed or implied. Adam King hereby disclaims to the fullest extent permitted by law, any and all warranties, including, but not limited to A) any warranties concerning the usefulness of the content or information provided and B) any warranties of title or warranty of non-infringement. The author and publisher shall not be liable for any third party losses including the loss of profits for any direct, indirect, incidental, special or consequential damages arising out of the use of this material whether based on warranty, contract, tort, or any other legal theory, and whether or not Adam King or any of his employees, agents, or service providers or advised of the possibility of such damages. Because some states do not allow the exclusion or limitation of liability for consequential or incidental damages, the above limitation may not apply to you. In such states the respective liability of Adam King and his employees, agents, successors, assigns, affiliates and content or service providers are limited to the greatest extent permitted by such state law. Copyright Notice No part of this manual shall be modified in any form. However, you are welcome to share this manual with whomever you wish via sharing via email, print or mail.
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Before We Begin Analysis Paralysis. It is what causes us to re-think, doubt and freeze up before we can ever make our move towards financial freedom. In the case of the material herein, there is a cure and I would like to share that cure with you first. In 1998 I created something called "Tessera". This later became the "Tessera Method" and is something I am working on to complete as I write this manual. (http://www.tesseramethod.com) The basic concept of Tessera is that our views, our observations and realities are altered by our emotional sense. In short, there are two parts to each of us that allow us to function. The first is our logical sense. This is the part of us that analyzes, measures and collects data. This is the part of us that reads material like this and when it understands it, it shares the knowledge with the second part of us, our emotional self. To put things into perspective I would like to share with you a model created by Dr. Jonathan Haidt, the author of "The Happiness Hypothesis". Dr. Haidt compared the emotional side of us to an elephant in which its rider, the logical self sits atop. He explains that when our logical self decides it has a clear path to something that can free us from our constraints, this path is shared with the emotional self, or elephant in order to move towards that path. What happens next is astounding. (See model 1.A below from the Breakthrough to Wealth Series)
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If you look at model (1.A) you'll see what I'm talking about. At first, we have the logical, a stick figure in the upper left corner representing our logical/observational self. This is where our thoughts occur when we want to be taken out of an uncomfortable environment. Then, the logical shares these thoughts/ideas with the emotional self causing the emotional self to make a choice. The emotional self uses "assumed predictions" of a future outcome based on the "feelings" of a past experience in order to agree or disagree. In other words, the emotional agrees that reading a real estate manual and applying it may feel like something similar in the past that has already worked and agrees that it may be the answer to change the "present" environment. Now, move towards the right and you'll see the two figures shaking hands. This is my representation of a "real time" environment with real time variables. What happens here is simply amazing. All of our "emotional" assumed expectations that were brought forth by our emotion come crashing to a halt when a "new" and "unpredictable" environment is introduced. The outcome of this environment is resistance from our emotional side. You know, the upset feeling in our stomachs telling us that something doesn't feel right and it's time to get comfortable again. This causes us to resist the situation like an elephant telling our logic something's wrong and we need more answers. Now, Jonathan puts it way better than I have ever found on my own. Basically he says that what happens now is our emotional side, or the elephant part of us, starts to pull against and resist the rider. And what may now appear as laziness caused by inaction is nothing more than the exhaustion inflicted upon the logic (the rider) by the two ton elephant. Amazing... Now, this is a great model explaining personal resistance, but there's one more part that sets the groundwork for Tessera. During my studies with Tessera and experiences in life in general, I noticed something very disturbing that causes us so much stress, anxiety and suffering. This is the one thing that creates the framework for the resistance model described in model 1.A.
Please go to the next page for the example.
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In model 1.B below I will describe what I call Automatic Negative Processing, or ANP.
I have branded this model exclusively for the content within this text. So, if you look at the top left stick figure, you'll see I am modeling a seller, or tenant/buyer. For this example we'll just assume it's the seller. If you look to the right of this figure, you'll see a list of stresses such as bills, debt, uncertainty with direction and so on. Basically these are the things in our lives we want to get away from. Next, you'll see a flowchart moving down to the next sentence, emotional triggering thought. In short, this is a thought of the constraint or stress we want to move away from. Under that is the ANP that monitors the thought until it is gone. To give you an example of this, let's say I ask you to remember a horrible event in your life. Maybe a time you were hurt physically, emotionally or financially. Then, I am going to ask you to "not" think of this thought. You can't stop thinking of it can you? You can't and ANP is why. What our brains do is produce an automatic monitoring of the stress that we want to get rid of, and for good reason. It does this simply to identify the moment when the stress is gone. The unfortunate byproduct of this is the compulsive thought of that particular stress or constraint we don't want to think about. Ouch...
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As you can see in the final top right, this causes a 24/7 compulsive thought process forcing us to live in full-time stress. And since stress equals survival, this means we're in a high tension survival mode all day long. And you guessed it, this survival mode produces excessive resistance against outside influences. So when we decide that there's something we don't like, and we stress over and over again until that it's gone, it's our emotional side that forces our logic to continually look for alternative answers instead of the simple solution that could be right under our noses. And complying with the emotional in order to locate another answer is Analysis Paralysis. So it's not enough just to say take action. People who say that don't understand the inner workings of our minds. Our brains are literally wired to create "shortcuts" into acting faster when something we don't like presents itself. This means that our brains are wired to give our emotional self seniority over our logical self if the situation calls for it. This is good if you're getting chased by a rabid dog, but not when you're trying to get out of debt. However, with this model, what I'm getting at is your emotional side may not know the difference and force the logical to keep running. Note: On the bottom right of model 1.B you see the words Enter Fundamental attribution Error". I am going to include this model simply because what you've just learned is very powerful if you can see it in others! Fundamental Attribution Error Imagine for a moment you meet someone and can see ANP at work with them. They're always stressed, always on guard and always looking to prove that everyone's out to get them. This is your seller and potential tenant/buyer, my friend. As a matter of fact, this is why "cold calls" suck and no one wants to do them, or receive them. The Fundamental Attribution Error, in short, is a false judge of character based on a particular situation, or environment. This is why when I say never tell people you're honest because they won't believe you, I mean it. People will come to their own conclusion first, until you can prove them otherwise. And don't worry, I'm going to show you how to prove them otherwise. It's a simple theory, in fact. We, you and I, on a self observational level externalize our problems. In other words we blame others for our mistakes because this is a part of our DNA and natural survival mechanism. It's what our brains do in order to escape or fight a threat. However, when we see others we "internalize" their problems. What this means is that we blame others for their own perceived mistakes. This is the exact opposite of what we do for ourselves.
Please see the model 1.C. below
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If you look once again to the top left, you'll see a similar model to the ANP model. This is the seller and/or tenant/buyer's problems. On this list you'll see that 1-4 are examples of the externalization of their problems, i.e. it's your fault, you're stupid, he's not nice etc. Again, we externalize our mistakes and internalize other's. If you look to the right, you'll see an example of internalizing other people's faults blaming them for their own problems. This is something that we do when we meet a seller in despair. We judge them and they judge us. But they judge us more when we're not acting like ourselves, i.e. they smell BS and immediately assume you're the enemy when you're just trying to help them. And in all reality they're right aren't they? Are you NOT there for yourself? Hum... Here's the holy grail recipe for disaster and if you get this one lesson it could change your life forever. If the Automatic Negative Processing ever turns inward, you're screwed. I know this because I experienced it firsthand when I became a private lender and took investors into Atlanta and blew it. I went from millionaire to fool in three simple deals. What this does is forces us to stop trusting even ourselves. And worse, when we're judging people for their own mistakes it causes us to trust no one else either.
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So, how do we get past this? How do we start to live the lives we want to live, work within the environments that can cause us to prosper, become fulfilled and lock in our certainty for a solid and rewarding financial future? The answer is so simple it will shock you. Altruism: The quality of unselfish concern for the welfare of others If you put others before you, magic happens. I mean this sincerely. Even if you're at the very bottom of the barrel, if you absolutely, 100% hate your life and even yourself and desperately want out of your current situation, this is your escape. Altruism causes us to sincerely take interest in other people. Sound familiar? It should because those are Dale Carnegie's words in How to Win Friends and Influence People. But, unfortunately, I didn't learn the lesson from reading his book, I learned it from my devastation in Atlanta as a private lender. If you want to be successful and move past your own constraints, simply put others first. I'm absolutely not talking about becoming a servant, but becoming a person of "service". This is why I assign to the seller and not the tenant/buyer as you will soon see. Altruism has changed my life, but only through Tessera. Tessera showed me that we are all connected and there is absolutely no duality except that within our own DNA and physical being, of course. Do to others as you would have done to yourself. This isn't just a new age or religious quote, it's a scientific fact. It is proven, without doubt, that we are all a part of each other, we are all a part of the whole, the fabric of being. Simply put, we're all the same energy and with this knowledge you can now treat people as yourself and move past your constraints. This is Tessera. A Tesserae is a square piece that makes up a mosaic. It is more commonly known as a mosaic tile. It is a single part within the whole. Making cold calls, or moving into an unfamiliar environment is tragic to the ego because the ego is the emotional self looking out for its own self-interest. This is what causes us to doubt, and lose faith and trust in others. This is the byproduct of the Fundamental Attribution Error and is what causes war. And the only way out of it is to practice altruism. Why? Because when you're looking out for someone else, within an uncomfortable environment, the body/mind is not focused upon itself, it is focused on a real-time outcome built within the present, i.e. the other person. In short, you can't have an anxiety attack if you're focused on an external variable within the present and not the self...it's impossible. I sincerely hope with this knowledge you are ready for the lessons within this ebook. Because what brought you here cannot be what takes you there. Warm Regards, Adam King
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Part Two The Cooperative Purchase Getting Leads The Four main problems of getting leads are: 1. No money for marketing to obtain sellers such as postcards, newspaper ads, website design etc. 2. Fear of cold calling. As we discussed in our resistance model, most of us are scared of an unfamiliar environment. This causes us to freeze up before or during the call because we think we need to know the outcome before it takes place, i.e. analysis paralysis. 3. Uncertainty when qualifying sellers. None of us wants to waste time talking with anyone if we don't already have a good idea that they're going to fit our model. Just like Internet marketing, none of us want to spend any money, or waste any time on a prospect that's not going to fit our program. 4. No Internet skills to get leads. If we don't have marketing skills on the Internet, or money for PPC, time for article marketing or knowledge on video creation, we have to rely on doing cold calls or other things we may know, but don't want to do. The Solutions Solution One Joint Ventures Calling We Buy Houses Investors from the following list in order to joint venture and get going. A. Newspaper ads B. Bandit Signs C. Websites D. Craigslist E. REI Clubs Step by Step Call and Say: Hi, my name is _______________ and I'm an investor. I have a very special program where I leverage and assign little to no equity seller financing deals. I was wondering if you have any motivated seller leads that you're throwing away or can't do anything with because they don't fit your program/s? If you do, I will sign an exclusive agreement with you in order to take those bad leads and try to apply my system to them. If I can close them, I will pay you a $500.00 partnership fee for each one and you won't have to lift a finger. I can take on as many as you can throw at me. I have NEVER been turned down with these types of calls. Two things usually happen. One, it's a brand new investor that has done marketing but is scared to call a seller back, or doesn't know how to close them. (As with the "Get a Deal in One Day Video") These new investors will be eager to work with you because they'll want to know what you're doing, but don't panic, I have only been screwed on a handful of deals and those investors didn't make it without me anyway. Or two, the investor you're calling will be seasoned and most likely say this; okay, let's give you a chance to prove it, I have one right now are you ready for their name and number? Can you say DEAL! http://www.cooperativepurchase.com
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This is how I talk about getting a deal in one day because it works. About 90% of all seasoned investors I called with this proposal gave me a deal right off the bat and then later we created a Cooperative Joint Venture agreement like the one in the Cooperative Purchase System. The cool thing to think about is that it took me 2 years to get my first deal because I tried to do it all by myself let alone I didn't have an altruistic mindset. Or, more to the point, I wasn't sure of my assets, or system I was using, so when I was in front of the right person it would be me who blew the deal because of my uncertainty. So, once I started doing JVs, I offered my investors 50% for my entire first year, which I was more than happy to pay. But, after a year of doing everything myself via my joint ventures I changed things in order to automate the system with agents and paid my JV partners a $500 marketing fee and they were just as happy. Solution Two: The 5 Questions to Success This one is so powerful, it's ridiculous. Back around 2006 I had an office filled with students, agents, partners and a secretary. My secretary's name was Kelly , whom I paid on an hourly basis. One day I was walking by her office and noticed she looked "bored". We had a great relationship so I asked her what was wrong. She said that, of course, she was bored and wanted something to do. Since I was paying her hourly that wasn't cool for either one of us. So, we took lunch and I bought a local newspaper. When I returned, I asked Kelly to call all the FSBOs and ask them a series of, you guessed it, five questions in order to locate price, repair costs and motivation. It took me all of ten minutes to formulate the questions. The questions needed to be direct and focused, as well as disclosing who we were so there was no mistaking our intentions. Telling a seller you're an investor and not hearing resistance is a sure way of testing motivation. However, I was looking for seller financing so I needed more questions to move the seller to the answers we were looking for, to indicate they were willing to play along. And finally, this all needed to be done so there was zero resistance on Kelly's part, as she was the one being asked to make the calls. That part was easy, however, she was working for me and represented herself as my secretary. This later would become a massive breakthrough, solving one of the greatest constraints of the new investor, fear. Here's how Kelly's phone calls went. The Five Questions 1. Hi, I'm calling about the house, is it still available? 2. Good, we're investors, does the house need any repairs or updates? 3. How much are you asking for the home? 4. How much do you think the home is worth? 5. So, if you can't sell it what are you going to do, rent it? http://www.cooperativepurchase.com
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These questions turned out to be so powerful that I made an entire course out of it. The thing that was cool is that I HATE calling FSBOs and trying to get deal. When Kelly came across resistance (which I heard as I spied on her conversations from the hallway) she simply said, look I work for an investor and we're trying to see if your home fits one of our programs, that's all. So, if you are trying to sell it, I need these questions answered because I'm the buyer, not someone trying to sell you something. Holy cow, what a revelation! Shortly after watching Kelly CRUSH IT with this method, I soon started teaching it to my students. I first did it by joint venturing with them and then let them do it on their own. The ones who didn't try to sell, or didn't ask any questions such as; what do you do etc, were the ones most successful. The key to the questions is to first locate motivation by asking question number two and mentioning the fact that you're an investor. If they don't say anything you're most likely talking with a very motivated seller. Secondly, questions three and four will give you an idea of the price point and once again, allow you to see motivation and if it can be a lease option assignment deal. In some cases they would have a lot of equity and I would move towards another type of Cooperative Purchase, but that's not what this report is about, so we'll stick to lease option assignments. And finally, the fifth question would outline true seller financing motivation. It's not what you say, but "how" you say it that made the system work so well. So, if you can't sell it, what are you going to do, rent it? It's a fair question of proposition. And what it does is gives you your final answer, if they'll do a lease option. Simply because if they answer with either yes, we're going to rent it or, we'll just let it go to foreclosure, you're in. The Associate Program As time progressed, I began giving students a simple manual about the five questions. Then, when I moved away from these types of deals, I didn't want to leave them hanging so I created another manual called the Associate Manual, which outlines what I was doing in a transaction after receiving a lead from my five questions JV partner or student. This was simply a process of following up with the seller, which was now a warm lead as well as outlining a simple set of questions I'd ask in order to finally get all the numbers and other details I needed. What I did with this was allowed the student to "hire" five questions partners/workers and give them the five questions manual as a guide. This made it turn-key and a lot easier for the student instead of trying to explain it all to their new partner or assistant making those calls. Now that we're done with how to get a motivated seller with no money and little to no resistance, let's talk about what to do once we have one and how to tie up the property. Analyzing and Negotiation Let me make this really easy on you. A good lease option assignment property is one that has at least 5% equity in it, or more. So if it's worth $100K, the seller should owe no more than $95K. However, if http://www.cooperativepurchase.com
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there's other variables causing it to be over leveraged (They owe $100K and it's worth $100K etc) such as repairs or updates and a tenant/buyer wants to make those repairs over time, then price almost becomes unimportant because those repairs could raise the value to or above the current value. The reason I say, make sure there's at least 5% equity, is that when you take your assignment fee, say 35% or more, you're gone. That assignment fee, as you'll see shortly, is always applied to the property, meaning it looks like it went to the seller, when it didn't. So, in short, if you're taking the money and assigning your interest to the seller, they now owe the tenant/buyer that money in equity, or cash, if they can't close due to the house not being of value, or another unforeseen reason. This can blow the deal for the seller and put them in hot water if they can't close. So, let's do our best to look out for the seller and tenant/buyer because without them we have nothing. First Phone Call If you're doing deals out of town, then this can all be done over the phone. Of course, being in person is better, but I've done more than enough deals out of my town, or out of state, to know I can tie up anything with the technique you're about to learn. The purpose of the first call is to truly outline the numbers and motivation of the seller. At this point, you may have tried to talk them into a lease option and good for you. They need to gain your trust first and the way to gain people's trust is to let them trust you based on their own conclusion. So, if you're out there telling people that you have a lot of integrity and they can trust you, their conclusion will be that you're a liar and out for yourself, which already mentioned, isn't far from the truth. This causes a type of Fundamental Attribution Error on their judgment against you, which I have already explained. Now, here's the technique. Again, we've already talked about seeing that you make sure the numbers work. We're looking for 5% equity or more, but depending on the property we could even do a deal that is overleveraged 100%. Again, this would be a property that would need some work that would raise value, that the tenant would be interested in doing. Notice how I'm not saying that the deal could be good because of the market bouncing back. God knows I'll never make that mistake again, and neither should you. So let's stick to the basics and keep things as real as we can. Locate the Pain Once you have the seller on the phone you should identify why they're selling. Most investors will tell you that your job is to locate the pain and then give a cure for that pain, not me. I'm telling you to locate their pain, so you can use it towards your advantage. What am I talking about? Simple, you're looking for a reason to make you look like the good guy, not just the guy with the answers. Not yet anyway. What you're doing is looking for a "Scapegoat" to their pain. Something such as the bank, the economy, job loss, or heaven forbid, a spouse. The reason for this is simple, you're looking for something you can create an excuse about, when it comes to making your offer. READ THAT AGAIN!!!!!! http://www.cooperativepurchase.com
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I just gave you one of the greatest closing techniques of all time! Here's how it works. Step One: You locate the reason for them selling. Let's say it's the economy, which, as of late, is almost always the main reason. Step Two: Go over the numbers to make sure the property fits a lease option assignment criteria. You already know what that is, so move to step Three: Step Three: MAKE YOUR OFFER In this step the trick is to move them towards a seller financing acquisition because that's all you're able to do. You can't buy it because one, you don't have the money or connections yourself, and two, there isn't enough equity to do so. So here's how you apply your offer to the scapegoat. Mr./Mrs. Seller. Here's what's going on. Of course, because of the economy (scapegoat that they came to by their own conclusion "are you following me"?) eating away your equity, I don't think I can convince a bank to take the risk on a buyer purchasing the house. And investors (this cleverly takes yourself out of the equation, so pay attention) who offer cash for pennies on the dollar and buyers wanting the world for nothing, are out of the question as well. They (THEY not you) simply will want too much from us (US not you) and I'm sure the numbers we (WE not I) have won't work for them. THE SHIFT However, I think we (WE) can make what's against us (US) for us. In order to get you cashed out, we need to create an asset for a bank. They need to do loans right now, but they're scared because of the economy, too. (Scapegoat used once again)This means that they're looking for stronger buyers, as well, but not ones that want to pay you half of what you're asking for. So, what I think we can do is locate a motivated buyer who isn't freaked out about the price and can't get financing right now because of their credit. This would be someone we can sell top dollar to and help get their credit repaired along the way, so a bank would give them financing to finally cash you out. But,, in order to make this happen, I would have to use the help of my team of professionals to locate a buyer and give them some time to get their credit repaired so they can get financing. (OR: I would be willing to do this, if you give me the opportunity to find the right buyer, give them time to rent the house with the option to purchase, so they'll have time to fix their credit and get a mortgage.) And "they" can pay me for my efforts, which would be of no expense to you. If you're ready to turn this on, we'll use the numbers that we came up with together. (Note: These were your numbers but while using the scapegoat their logic took control over the elephant and forced it to agree) All I need is legal right to put my team of agents (which I will pay for) and loan officers to work so we can locate and pre-qualify the right buyer. Then, I would like 90 days so my team can locate the http://www.cooperativepurchase.com
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right buyer, qualify them and get them into the house. I can do all of this without a purchase agreement, so you can still try to sell at the same time (by yourself, NOT with an agent). So, instead of a purchase agreement, I can do this with an option at the same terms we decide that the tenant/buyer will pay you. Then, once we locate the right buyer and my team can prove they're the best choice for your home, I will assign my option back to you for the money the buyer puts down. Done. At this point you're allowing the seller to come to their own conclusion both emotionally (through the scapegoat) and logically through your explanation and ability to activate your team. It's almost as if you're now doing them a favor, but explaining that you're not doing it for nothing even knowing it will not come to any cost to them. Now, let's talk about the paperwork! Signing the Deal Once the seller agrees with you, and is more than ready to make it happen, it's time to sign the paperwork. This, of course, is an option to purchase that outlines the criteria that will get you both what you want. The first step is to choose which option to purchase to use. I have two in the Cooperative Purchase manual. One is an exclusive option which gives you exclusive right to purchase and/or assign the property. This means that during the option term, usually 60-90 days, the seller CANNOT sell the property without you getting paid. The second is a non-exclusive option to purchase, which gives the seller the right to sell the property during your option term, if they find a buyer NOT from your efforts. In all reality, the non- exclusive option to purchase is still exclusive in that respect. FYI I've used the non-exclusive 99.9% of the time. I have only had a seller sell out from me to someone I brought, but that someone lived across the street and already showed interest before I was ever around. I would have a hard time in court trying to convince the judge it was from my efforts that brought the lady from across the street, even if she called on my sign and I had record of it. So there you have it, let's talk about the non-exclusive option to purchase. First, there are a few things to get out of the way. NOTE: The following is NOT legal advice on how to fill out a contract, it is only an example of my past deals and prior experiences. ALWAYS seek legal advice before filling out or entering into a legal contract and NEVER NEVER NEVER fill out paperwork for someone else! You will be acting in the capacity of an unlicensed attorney, which is ILLEGAL!
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1. The names of the parties and address of the property.
A. PROPERTY: The real estate commonly known as: __________________________________________ together with all its improvements. B. PARTIES: The parties to this agreement (Option) are the owner of the Property, ________________ (Seller), hereby referred to as Optionor and ____________________ (Buyer), hereby referred to as Optionee and or assign.
2. The time frame of the option (I suggest 60-90 days. 90 days is easy to get on a non-exclusive and trust me, if it's a bad deal and you tied it up, i.e. the seller nags you every day, a 30-60 day is just fine) E. TERM: The Option term shall begin on _______________ 2011 and expire on ___________2011 (original term).
3. The consideration put down towards purchase. This is the $1.00 we talk about giving the seller, which gives you legal right to purchase the property. A promise to pay is also considered consideration, but that's not what you're doing here so money should do just fine.
F. CONSIDERATION EARNED TOWARD PURCHASE: If the Option is exercised during its term, all Option Fees paid by Optionee shall be applied towards the purchase price, Optionee’s closing costs, and/or down payment at Optionee’s choice. Received today as Option consideration in the amount of: $_______ Initial _______ ________
4. This is the lease purchase criteria part that allows you the right to purchase and/or assign to a third party. This is where the terms such as: A. Time frame of the lease such as 1-2 years etc. B. The amount of consideration you expect/desire the tenant/buyer to put down, i.e. 3-5% or more. C. The purchase price of the property during the option term. Lease Purchase: Optionor will grant buyer the option to purchase the property in the amount of: $______________________________while leasing the property for a ___ month period with payments of $_____________ per month due and payable on the first day of each month with $_________ down as non-refundable option consideration.
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And finally, the signatures on the back page complete the tying up of the property. Note: Although I have given you some examples of the clauses, they are "Samples" only and not complete as you'll find within the Cooperative Purchase. Now that we have a property under contract, let's get it sold! If you haven't watched the "Doing deals out of town videos", please do so now by clicking the pictures below.
VIDEO ONE: CLICK TO PLAY
VIDEO TWO: CLICK TO PLAY
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Now that you have a grasp of getting a property sold, let's go through a quick checklist as a refresher. 1. Once the property is evaluated and under option, (at this point you've already hired an agent to do the analysis) it's time to call your agent and get the listing going or a sign in the front yard. There are two things to consider when working with agents. One, their commission on these deals are NOT that large so they may not want to list the property on the MLS just quite yet. They'll want to show it to their current clients first so they can keep the entire commission. And you guessed it, this isn't a problem. The second thing to consider is that you'll need to have a listing agreement with them and you as the seller. Can you sell a house you don't own? The answer is simple, a broker's job is to put two parties together, that's it. An agent works for a broker, or is the broker in some cases and can represent anyone they want who has a principal interest on the property. This means you because of your option. So yes, they can list it for you. Their only risk is that the seller backs out of the deal and you're both screwed. So, you sign an exclusive listing agreement with the agent. (on that particular house only) Yes, show respect and do an exclusive listing agreement with them so they feel comfortable in getting their commission and not working for nothing. And at this point you can assure them that it's not your intention to do ANY work trying to market it on your own because that's the entire point of having them do it for you in the first place. So, now you have the agent ready to show the property. If they don't have a tenant/buyer just yet, they can put their sign in the front yard, but let's make it clear that this sign is going to say rent to own, option to buy or lease purchase. Sometimes agency signs can turn a bruised credit buyer off or give them "terms blindness", i.e. they don't see that you're offering seller financing because they're used to seeing those signs on properties asking for cash only. But nonetheless, it's "their" sign that's being put up. Agent or Loan Officer to Take the Calls? Now, where do the calls go? This can be done two different ways. One, the agent can take the calls (preferred) to tell the prospect tenant/buyer all about the house. They can then "feel them out" and see what they have to work with. Then, the agent can give the prospect to the loan officer (which in most cases is someone they're already working with and trust) and let them financially pre-qualify the prospect. This is the best of both worlds and hands off to you. The second way is having the loan officer take the calls first, but I've found out that these guys and gals sometimes turn the prospect off because they're too pushy on getting them financed NOW. QUICK NOTE: Just in case a tenant/buyer winds up getting financed NOW, instead of doing a lease option, you're still in good shape. This is a very quick technique on what to do if that happens. http://www.cooperativepurchase.com
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Step One You have an option to purchase for a lease option assignment. No biggy. Step Two You find a buyer qualified for purchase NOW and want to still assign the deal, but can't because the buyer's bank doesn't like assignments. (Yes, this is where you get your attorney involved and get their advice on how to structure this to stay on the right side of the law, but I will continue with the example) Step Three The title company/escrow attorney's job is to make sure that a bank giving a loan has clear title on the property. Your option, in fact, creates a problem for the bank, so you need to be removed in order for the bank to have clear title even knowing you're not holding a lien on the property. So, what do you do to show you have an interest in the property without having a lien or memorandum filed? Simple, you tell the title company and show them your option agreement. Step Three Because the seller gave you the option, you renegotiate a reasonable assignment fee but in this case it's no longer an assignment fee, but a RELEASE fee for your option. (This technique is thoroughly outlined in the Cooperative Purchase manual.) So what you do is create the release agreement outlining the fee owed to you by the seller. Step Four Give the release, and your option, to the title company and collect a check at closing. This is the very same technique similar to if you were a contractor and the seller owed you money for a job they didn't pay you for. How do I know this? Because I've been that contractor. I hope you enjoyed that little freebee. Moving on. A Tenant/Buyer is Located and Confirmed as a Good Buyer Once a tenant/buyer is located it's time to get the proper data from your loan officer and agent and present it to the seller. In most cases it's simply a three way call with them and your seller to prove the prospect tenant/buyer can get financing, if they do ABC to their credit, and when that may happen. The Closing Steps Step One Contact your tenant/buyer and tell them they're qualified and it's time to make a deposit and sign and/or review the lease with option agreements. A. The Lease Agreement is with YOU as the landlord. This is a PRO seller/landlord agreement and will outline the terms of the lease, which will mirror the terms in your cooperative option with the seller. http://www.cooperativepurchase.com
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B. An option agreement outlining the terms of the tenant/buyer's consideration and time frame of the purchase. Step Three Set up a time to close with the tenant/buyer and then the seller. This can be done in the agent's office, if you're out of town, or even if you're in town. It's a nice comfortable place and the agent will want you there so they can make copies and get their CHECK! Step Four Close with the tenant/buyer. Collect their full option consideration, first month's rent, and give them a copy of the lease and option agreements. They get the keys when the check clears and THE DAY the lease starts, NO EARLIER! Step Five Close with the seller by assigning your option, lease agreement and tenant/buyer option to purchase. They get the first month's rent and you get the consideration. Pay your agent their commission, and you keep the rest. Experience notes: Most states require a three day right of rescission. This means that sometimes I won't cut checks to anyone until 72 hours after I cash the check. I have at least three times cut checks and had the tenant/buyer back out leaving me with a very, very sour taste in my mouth because I kept my word to those I paid their share first. That won't happen again. Secondly, you want to be careful that the check clears before you give them the keys. As a matter of fact, I would make sure the lease agreement and option agreements aren't dated for that day, but for a future date very close to after the check clears. I had a tenant once take the agreements, give me a bad check, go to the seller and say she paid me while showing him the agreements and got the keys from him. She then started moving her crap into the house. Then, the check bounced, I found out she moved in and we called the police. The police showed up ready to boot this lady, and I mean BOOT her until she showed them the lease agreement, which wasn't good for another few days. The cops said, we don't care, that agreement isn't good and they want you out. Then....deep breath....she showed the cops the keys and said the seller gave them to her. We all turned to him and he looked like someone just knocked the wind out of him. We wound up in court, they trashed the house and the lesson still stings like hell. Don't get taken by a con artist!
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Alternative Cooperative Lease Option (aka The Cooperative Assignment) Just so no one is losing their marbles, I'm going to give you the most basic lease option assignment strategy commonly known as the Cooperative Assignment or Cooperative Lease Option. Now, I've been calling this technique simply lease option assignments, or LOA's for almost a decade, so that's what I like to call them. First off, these are ALL the same thing and we just went through the strategies together so you already know how to do them. However, I want to stake my claim and tell you that becoming the landlord and then assigning to the seller is my preferred way before I show you the most common strategy by assigning to the tenant/buyer. Let me explain When you do these deals there's a psychology to it that produces a virtual kind of leverage. What I mean is, that when you meet a tenant/buyer they see you as the SELLER of that property. They gain your trust because of this, and by means of their own conclusion, see you as a professional as well. I don't care if you're brand new, or not, this is a fact and experience will prove it to you. Secondly, I believe in preeminence and even knowing I'm working for myself as a principle in the transaction, I feel a strong obligation to both parties, but to the seller first. I sincerely care for them and it gives me great honor to be able to help them in their situation. And without them, there is no opportunity for me, or the tenant/buyer. So, with that said, I always have a feeling as though I'm "working" for the seller and at all times looking out for their best interest first, and the tenant/buyer realizes this by the approach I have towards the system. On the other hand, some investors (including me at rare times) like to assign their interest to the tenant/buyer. This strategy is as follows. Step One Option the property from the seller the very same way you would as detailed above. Step Two Create a pro-seller lease and option agreement between the seller and you with you as the tenant/buyer. Step Three Locate a tenant/buyer and assign your interest to them collecting their consideration as your profit. Again, this is basically the same strategy, but something about it bothers me in that I'm assigning my interest to a secondary asset (the tenant/buyer) of the acquisition. In layman's terms this means that I'm in a sense working for the tenant/buyer who isn't the person ultimately responsible for giving us the opportunity in the first place, which of course, is the seller. http://www.cooperativepurchase.com
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So, there you have it, you've assigned your interest, you got paid and your team is STILL involved in the deal helping the tenant/buyer cash the seller out. THAT is how you do a lease option assignment! For more information, or to purchase the ridiculously low priced Cooperative Purchase, Five Questions to Success and Associate JV systems, visit http://www.cooperativepurchase.com Warm Regards, Adam King
Adam King Adam has been a national speaker on topics such as real estate investing, Internet marketing and business optimization for almost a decade. He has written over 12 real estate and business manuals, as well as several articles and thousands of hours of video and audio tutorials. He has been featured with some of the biggest names in business, as well as shared the platform with them across the country. He is most commonly known for his work for locating and bringing value to clients through his RTC Method, (ReDefining The Code) philosophy which is a byproduct of the Tessera Method. Adam is also the co-founder of Affiliate Article Writers as well as dozens of other business websites with his students across the globe. You may contact Adam at: mailto:adam@cooperativepurchase.com
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