Getting My Ducks In A Row
Hi,
I am a newbie and haven't yet invested in a property for a few reasons. One, I don't think that I am educated enough and Two, because my fiance is a little uncertain about the buisness. I read a book by Peter Finkel and he said that in your contract you can state that you have the option to end the deal within 3 weeks. The three weeks is to find a tenant buyer so that you would have protection against having to pay the morgage on an empty house. Is this a good method? And what happens if you don't find a tenant buyer-Do you end the deal? This may be a Lease Purchase Option question- But I thought the two were nearly the same. Any responses are greatly appreciated!!
Hello, and I'm glad you're here.
Plain & simple? Ok. I, personally, would not follow the advice of Finkel. Why? It's not good business. Why? Any town whether large or small has people in it; you'd be suprised just how small a large city can become; what's more would you want to sign such a contract as a seller? I certainly would not.
Learn about subject to.
Learn about locating sellers and buyers.
Ask questions -no matter how stupid you may think that they are-, and they'll be answered (I've always had my questions answered here).
Thanks, and welcome to Freedom!
OnTheWater :-D
Hey -
I am pretty sure that I know which book you are refering to. I actually just finished reading it myself. What they are talking about is really just a contingency clause in the contract that gives you a way to end the deal. A great many contracts have these contingency clauses in them in one shape or another. Some make the contract contingent on getting financing at a certain rate, others focus on the result of an inspection, others still require approval from business partners etc etc.
The point is, you can have contingency clauses in your contract that will not upset the seller or give you a "reputation" as OTW was suggesting. Almost every standard contract for real estate I have seen has some sort of contingency in there.
I personally think that Finkel's book is a great book and has many good ideas in there. Do you have to follow every one? No, of course not, but don't discount some of the information in there - it is good stuff.
I know some people consider "contingency clauses" to be "weasel clauses" and do not use them. Ultimately it is your decision but OTW's point, taken on a general level, is a good one, be honest, forthright and keep your integrity, otherwise people will find out and stop doing business with you.
Good luck
If you are going to be agreeing to make money, you are going to agree to take some risk. Although this business may look like easy money, it is NOT free money.
I believe it is totally unfair to purport to help a seller, then turn around and use a weasal clause to stick it to the seller - why would he need you? Do you have some magical touch for leasing?
For you to be successful you must have confidence and find a way to get things done. sticking it to sellers is NOT the way to start out. If you end up with a vacancy, deal with it. Work harder and smarter to get it rented. The school of hard knocks might be more challenging than any university, but you will learn.
I hope you don't get discouraged, If you believe in your heart that you can help people and make money, you can do this business without the 'guru's" books. Just try to think about any and all pitfalls PRIOR to signing the PA.
Feltman
I am curious, do you think that all contingency clauses are weasel clauses? For example, do you think a clause stating that the agreement is subject to inspection with repairs not costing more that XXX is weasely? If so, do you then have the inspection done before signing any agreement?
If you would, please be more specific about which contingency clauses you find innapropriate.
Thanks
Hey,
Contingency Clauses such as finance, appraised value or inspection are fine, and most of the time needed, clauses.
Weasel Clauses are "get out of jail free cards". They are incredibly vague or one sided. The injure sellers and are a giant red flag on a contract. Basically, they say I am not serious about this deal.
Bruce -
I actually agree, well said. I just wanted to make the distinction for the original poster. Thanks for your post
i had always used "subjet to buyer getting finance" i have been turned down a couple of times in the past but was able to get fin. elsewhere. it felt good nothing that if the fin. didn't "fly" i would get my down payment back. the sellers knew i was not using it as a crutch because they were following my efforts every step of the way and could see i was pursueing fin. aggressively. they felt secure because buy doing this i was able to put down a larger down payment than expected, this let them know i "was a serious buyer". it was explained to them in the beginning that i wanted the prop. and i was showing it by a large d/p but that i couldn't control the banks position. they always understood,agreed and signed the contact unless of course they didn't agree on the price but the escape clause was never a issue.....kenmax
p.s. i was buying a home that was going into f/c . the bank and the owner were in dispute on the sell conditions. they both wanted to sell . the bank to liquidate and the owner to dump the burden but they had conditions that they couldn't agree on and were dragging their feet. i told them "if they didn't get their #$% to gether that i was going to exercise my subject to fin. clause and walk" that day they signed so from this you can see the escape clause let them know i was a "serious" buyer it just depends on how you use it .........kenmax
Thanks guys for the clarification on this subject. I really appreciate all of the great advice people give in these forums!
Kenmax,
Good info. I am new to REI too.
I am curious about the clause. So you used it to tell the bank and seller that 'subject to fin' didn't go thru or you are not going to finance for the house?
Thx