How Are Funds From The Lease Option Buyer Distributed?

Read Transcript for “How Are Funds From The Lease Option Buyer Distributed?”

 
Joe: I hope you’re enjoying this process. I hope it’s good training for you. I hope you’re getting it piece by piece. Sometimes I find it’s a little easier to digest a ton of information over time in small little bits, and that’s why I do it this way. It’s also a lot of fun and it’s a nice way for me to be able to break this stuff up as well. It’s fun to see people come and see these videos. I love to have your comments so please give comments to these videos as you go along because I think it’ll help create a dialogue and I’ll try to do my best to answer the questions that you have in the comments on the blog as well, so keep that in mind.
 
Joe: As you go through this process, look at the training and where you’re at in your process and then decide whether or not you want to follow through with something like this. Sometimes it’s just fun to learn about it and it’s a hobby and it doesn’t really matter; it’s kind of a nice dream that’s off in the future, but you know, sometimes it makes sense to actually take action on some of this stuff and actually do it. And if you take action on it, over time you’re going to learn how to talk to these sellers, how to talk to these buyers, how to put these deals together and then if you try it a few times, you may find that you make some money, and if you make some money, you may find that you should do it again.
 
Joe: A lot of people will go and they’ll do it and they’ll make some money and then they’ll get busy with the rest of their life and they won’t do another deal for another year, and if they had only just done the same thing that they did the few hours that they had to spend on doing these deals, they could have done it again and again and again and turned it into something so consistent that it replaces their income and gives them the freedom and the lifestyle that they’ve always dreamed of.
 
Joe: This is a wonderful business, and it’s a lot of fun and I think that you would enjoy it if you’d follow through.

“When a lease option tenant enters the house and starts making payments, who exactly do they pay the monthly rent or option fee to? Do they pay the money into the bank account of the seller assuming that I’m the middleman?” – T. LaBuy

Joe: He’s talking about him as the investor as the middleman.
 
Joe: Well, first of all the, the tenant doesn’t move in until all of the documents are signed and until you get the lease option fee and you get the first month’s rent. The lease option fee is going to go to you, it’s going to apply to the down payment, and the first month’s rent is going to go to the seller.
 
Joe: If you have a property and the seller says on the lease option memo that he wants $150,000 for that property and you raise the price to $155,000, you get a $5,000 lease option fee, the lease option fee is paid to you and now the amount that they owe the seller is $150,000, so $5,000 applied to the purchase price and now they owe $150,000 and they have to pay, for example, $1,200 a month – they’re paying $1,200 a month on that lease and they’re going to pay that to the seller.
 
Joe: You’re out of the deal at that point, and the deal is going to be between the seller and the new buyer, so that’s the whole thing. The only time you would have the buyer pay directly to the bank to pay the mortgage of the seller is if you thought the seller was unstable and not going to be making those payments; you want to make sure that those payments are made, and the best way to do that is to have a stable seller who wants to keep their credit clean.
 
Joe: But if it’s not stable, then you could set up an escrow account and have it paid directly to the bank or have the escrow account pay it directly to the bank if the seller doesn’t want the buyer to have access to that information. But usually, you can solve that problem pretty simply and most of the time (9 times out of 10) the rent amount is the only thing that’s being paid to the seller.
 
Joe: The seller then pays taxes and insurance and any other expenses on that property that are going to be applicable. If they get a property manager, they’re going to have to pay for the property manager. If that person moves out or any future repairs are probably going to be covered by the seller, but, while they’re in it, the buyer is going to pay the rent and they’re going to take care of the property as they’ve agreed to on the agreement. So that’s how it’s distributed. I hope that helps.