Now don’t get me wrong, Zeb* was a wonderful tenant. He gave me decent Option Consideration, paid his rent on time and kept up on the maintenance. The only problem was getting him to settle down in just one home.
Zeb came to me in 1989 after reading one of my `Rent to Own’ Ads; interested in someday owning his own property and tired of making rent payments with no chance of getting anywhere closer to home ownership. Little did I imagine that this would be the beginning of a business transaction that would span 6 years and 4 different properties!
Zeb moved into a nice one bedroom condo for $2500.00 non-refundable Option Consideration, $725.00 per month with 50 % rent credit applied if he exercised his option to purchase. He was completely satisfied with this condo and it looked like Zeb had all the potential of becoming a future homeowner, But then it happened! A cataclysmic shifting of the universe occurred which no one could have predicted and which forever altered Zeb’s life.
In other words, my tenant Zeb had met the future Mrs. Zeb.
After very a short courtship, Mrs. Zeb decided that they needed a larger place (probably more room so that the In-laws could visit).
Zeb called that fateful day and said “Claude, do you have a larger place that we could rent to own?”
I wanted to keep the Zebs as Tenant/Buyers so my next move was to locate anowner who had a 2 or 3 Bedroom townhome that we could structure as a Rent to Own. Fortunately, there was just what we needed in the adjoining development. After negotiating and locking up the deal that I had found and created, I allowed the Zebs to transfer their Option Consideration and rent credit to the new property. In addition, I was to receive $1500.00 option money and an increase of $25.00 per month in rent. The original property that Zeb moved from was concurrently rented with an option to another couple for the same terms as I had had with Zeb.
After finding a new property and tenants, the profit picture was starting to look very interesting.
I had received a total of $4000.00 in Option Consideration and $600.00 in positive cash flow in just six months from Zeb for both of the properties. Now I was going to receive an additional $2500.00 from the new Tenant /Buyerfor the original 1 Bedroom.
A year went by and all was well until I received Zeb’s next enlightening phone call. “Claude we are EXPECTING.” I said “expecting what ?” He replied “a Baby Zeb and Mrs. Zeb says we need a bigger place again.”
As Yogi Berra once said, “It was Deja’ Vu all over again.”
Two months later the Zebs were moving to a larger townhome in another community. We agreed upon the terms which included all their option money from the first two properties and an additional $1000.00 in option consideration for yours truly.
* The names have been changed to protect me (of course).
NOTE: Option money is normally not refundable, nor are you required to transfer it to another transaction, but when you have good tenants (SUCH AS THE ZEBS) and are still making money, WHY NOT KEEP EVERYONE HAPPY WITH AWIN/WIN DEAL ? However, make sure that your spread or profit margin can support the cummulative Option money and rent credit.
So the Zebs, along with the new Baby Zeb, loaded up the truck and moved to Heavenly Hills.
The next year moved along quickly and I gave the Zebs a call to see if they wanted to discuss exercising their option. Zeb informed me that he had los this job and would have to move in with his wife’s parents until they got back on their feet. My empathy meter was pounding and I made the Zebs the following open offer. When they got back on their feet again, they should call me and I would apply all their Option Consideration from the last three transactions to another property that I owned or controlled with a LeasePurchase. The total amount at this time was $5000.00.
Two years later my wife and I were at the dinner table one evening wondering `whatever happened to the Zebs ? ‘
Wouldn’t you know, a week later the phone rang and it was my old Friend/Tenant Zeb. We commensurated about old times and properties and he indicated that he was back on his feet and doing well financially and (you guessed) was in the market for a single family home. Well as Mr. Haney of Green Acres fame exclaimed: “I just happen to have one on the truck for ya.”
The Zebs moved into a beautiful, newer 3 Bedroom / 3 Bath home that my company had recently acquired. As promised, I gave the Zebs full credit for all previously paid Option Monies. By the way, the Zebs paid me an additional $2100.00 in up front Option Consideration.
Final Analysis: By being flexible, I received a total of $7100.00 up front Option Consideration and a substantial monthly positive cash flow during all of these transactions. I will also create a nice 15% note at the close whenthe Zeb’s exercise their option in May ‘95.
I was wondering the other day ..... should I mention to the Zebs that we just Lease Purchased a new four bedroom / three bath home......... Hmmmmmm!
Diamond Consulting Group
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