Tuesday, October 2, 2018

SCARY STORIES ABOUT TEMPORARY LEASES!


There are a lot of moving parts in the buying and selling process and one of them that can cause major complications is the actual MOVING! Every seasoned agent heard of a transaction in which the buyer and his entire family is living out of suitcases in a cheap hotel room for weeks on end while paying hefty fees for their belongings to sit in a moving van waiting on any number of things that delayed closing.

Temporary Leases are a useful tool in helping to mitigate these situations but are not without their risks. Texas Association of Realtors (TAR) provides two promulgated forms that can be used to accomplish temporary leases in a sales transaction.

The Seller’s Temporary Residential Lease allows for the seller, after closing, to remain in the home for a pre-determined length of time. This is a very common requirement for sellers, particularly when they are using the proceeds from the sale to buy a replacement home. Generally, I don’t see many problems with these leases but I do have one scary story for you to use to help your buyer’s make good choices when considering a seller’s request for a temporary lease.

Our buyer, Carmela Corn, didn’t mind agreeing to a lease back to the seller of her new home, Blake Cat. After all, she didn’t have a strict time line to move and she understood that Blake needed the money from the sale to buy her new house. In fact, everything had gone so well with the transaction so far that despite her agent’s advice to the contrary, she didn’t require daily rent or a security deposit from the seller for the short term of the agreement. She did, however, specify an amount for any hold over days beyond the agreed term.

Carmela did a walk through prior to closing and found the property to be in good condition. A week later when she was delivered the keys to her new home she was excited until she found all the skeletons, I mean, clothes in the closet. While Blake had moved out most of her belongings she was taking her time with the rest. What’s more it appeared that Blake hired the notoriously clumsy Frankenstein Movers who damaged a banister and added a few holes to the walls during the process.

At that point, Carmela realized that she made a mistake not requiring a security deposit because she had little recourse or leverage at this point. Ultimately, with the involvement of Carmela’s agent, Blake’s agent and both brokers, the buyer removed all her belongings and delivered a check to Carmela for all the extra days it took her to move out and the damages she caused.

A buyer considering a seller’s request for a temporary lease should always request a security deposit substantial enough to cover hold over days and potential damages (Section 5 of TAR 1910). They should also be careful to include an increased rent amount for any hold overs (Section 19 of TAR 1910). The amount should be painful enough to the seller to encourage their adherence to the original lease term.  While these steps won’t guarantee they will have a stress free temporary lease it will give them the leverage they need if things don’t go as planned.

Less common, and rightfully so, is the use of the Buyer’s Temporary Residential Lease. This TAR form allows for the buyer to move into the home prior to the closing. It can be a common request from buyers who may be moving from out of state and displaced until they close on the home or they need the proceeds of the sale of their home to make the purchase. Everyone must go somewhere! However, despite the pain of the buyer, I advise my sellers to avoid agreeing to a Buyer Temporary Lease. One main reason, particularly if your seller is an investor, is their insurance policy may not provide coverage as a rental or occupied property. This could spell some serious liability should anything happen to the property or the occupants during the lease term.  But, if that doesn’t convince you, I’ve got another true-life horror story for you!

Jack O’Lantern got a new job out of state so he put his house on the market.  He was thrilled when he got a full price offer from well qualified buyers. He and his wife, feeling confident in the sale of the house, moved their family to their new home. When his buyer, Count Dracula, asked if he would consider allowing him to move into the house under a temporary lease prior to closing, Jack agreed. After all, he could certainly relate to Count’s situation of moving his family and being between
homes.

After all inspections and appraisals were completed the parties agreed to a Buyer’s Temporary Residential Lease in which Count Dracula delivered to Jack prepaid rent for the expected term and security deposit. A week after Count and his family moved in and a few days prior to the closing date Jack’s agent got a call from Count’s agent. There was a leak in the upstairs bathroom that has also caused damage to the sheetrock in the living room below. The buyers expected the sellers to fix the leak and repair the damage prior to closing. OR THEY WOULDN’T CLOSE. Nothing will make an agent’s run blood run cold like those words!

Jack’s agent reviewed the temporary lease and felt calmed when she reviewed section 14 of TAR Form 1911
REPAIRS AND MAINTENANCE: Except as otherwise provided in this Lease, Tenant shall bear all
expense of repairing, replacing and maintaining the Property, including but not limited to the yard,
trees, shrubs, and all equipment and appliances, unless otherwise required by the Texas Property
Code. Tenant shall promptly repair at Tenant's expense any damage to the Property caused directly or
indirectly by any act or omission of the Tenant or any person other than the Landlord, Landlord's
agents or invitees.

Each agent argued for their client. Jack’s agent insisted that Section 14 indicated that the buyer was responsible for the damages. After all, there were no damages found on the inspection PRIOR to him moving in.  Count’s agent argued that the item needed repair prior to but only came to light because of the use of the plumbing after a period of non-use. Count and Jack played chicken… neither was willing to budge.

Unfortunately, like many conflicts in real estate, if the parties cannot agree the cost and effort involved in coming to a conclusion can be extensive. Ultimately, the buyer and seller in this situation came to an agreement in which both parties took some responsibly for the repairs and the transaction closed without any delays.

While in this case the conclusion was fairly favorable for all involved, it could have been a much more stressful and expensive situation if it had been a bigger repair item or if the parties could not come to agreement.

If that one didn’t convince you to be a little scared of Buyer Temporary Leases I’ve got a real short story that might do the trick… A fellow investor, Freddy Kruger, allowed a buyer to move in early under a Buyer Temporary Lease. After living in the home for a short time she changed her mind. Just decided she didn’t really like it that much. She moved out. Didn’t close. Yes, he was made somewhat whole with her earnest money & security deposit but it was still a painful experience when he had to start all over (after another make ready cleaning!).

The Temporary Residential Leases for Buyer’s and Seller’s are good tools and can help make the transaction easier for those involved. But, like all contracts in real estate, they should be used with care and with an understanding of the potential risks.

Tuesday, August 28, 2018

Help us Bring Creative Real Estate Investing into the Mainstream!


Many of you have heard me tell the story of what Creative Real Estate Investing was like when I started, 15 years ago.  It was very much an underground, unheard of business practice.  So much so that it invited a lot of scams and unethical practices.

It should be no surprise, then, that Wikepedia, still today, defines Creative Real Estate Investing in the following way:

“Creative real estate investing is any non-traditional method of buying and selling real estate.  Confidence tricks and pyramid schemes … have embraced the term, leading contemporary usage of the term to be synonymous with unscrupulous practices.”

To find out this is how the general public really thinks, we did our own survey.  When asked what you think of when you hear the word “creative real estate investor” or see an “I Buy Houses” advertisement… the top answers that emerged were “Fraud”, “Scam”, “Greedy”, “Unprofessional” and “Uncaring”.

I have one question for all of you reading this blog… Is that how YOU want to be thought of?

So how do we change the public image of Creative Real Estate Investors?

That is our goal!  And we do that by bringing Creative Real Estate Investing into the mainstream; so that we can show the world that we help homeowners instead of scamming them!

That’s why StepStone Realty demands a high-level of integrity and honesty.  That’s why we want investors to get licensed and act responsibly.  And that’s also why we teamed-up with Pryme Homes, who upholds those same values, to host our annual Golf Tournament, The Black Sheep Open!

The Black Sheep Open is our chance to show the world that creative real estate investors are not underground, not scammers and are NOT trying to take advantage of people.  But rather, we are professionals, grounded in a high level of integrity and honesty that helps the community.

Day to day, we help the community by saving homeowners from foreclosure, bringing back the quality of neighborhoods and enriching all Americans by bringing up home values.  But we can do it in a big way, one day a year, by coming together for a GREAT CAUSE! 

Because that is what normal, mainstream, honest businesses do.  We not only work to better our community through our work, but through our volunteer time and charitable nature.

Homes for our Troops (HFOTusa.org) has the following mission:

To build and donate specially adapted custom homes nationwide for severely injured post-9/11 Veterans, to enable them to rebuild their lives.

By participating in the Black Sheep Open, as a volunteer, a sponsor or as a player, you are showing the world that we are an honest group of professionals, willing to give our time to help those who sacrificed for all of us… severely wounded veterans. 

Not only are you giving your time to a great cause, but you are giving your time to help bring Creative Real Estate Investing into the mainstream!  So let’s get together on September 22 and show the world who Creative Real Estate Investors really are!

(Sign up as a team, an individual player, or a volunteer at BlackSheepOpen.com)

Tuesday, July 31, 2018

Black Sheep Make Better Agents


A few weeks ago, with the help of Patten Law Firm, StepStone had the opportunity to present a free CE class, Advanced Owner Fi Strategies, to local real estate agents. Dan teaches this class and while it can be a lot of information the take away is certainly the advantages of the owner finance option for sellers.

After one of the classes, an agent came up to me and admitted that she had a lot of questions but didn’t ask during the class because she felt so behind the eight ball in understanding the subject. However, her interest was piqued particularly because she had a listing in which owner financing seemed like a perfect option for her client.  We discussed the seller situation and I agreed with her and gave her some advice on her listing.  In fact, not only was owner financing a good option for her listing it was a GREAT option that would allow her clients to not only sell the property but also create residual income on that sale for many years to come. I have a feeling that her clients are going to appreciate her out of the box thinking.

I admit it. When I’m around other, more traditional real estate agents, I’m a black sheep. In fact, before we did the class Dan and I wondered if we would get any negative reactions. It sometimes happens that agents from more traditional training will have the point of view that investor strategies are unscrupulous, illegal, especially illegal for them as agents to participate in, or simply, unsavory. Luckily, we had some great participants who were actively engaged in the discussion of Wraps, Sub To’s and Amortization tables although I’m pretty sure some of them were happy to have their 2 hours of free CE credit and never think about owner finance again.

So, it was especially exciting for me when that agent engaged me on how what is often thought of as an investor strategy could help her get a big win for her and her client. But, it’s not only familiarity of creative selling strategies that can help agents service their clients.  As real estate professionals, we ought to be aware of all strategies available to sellers and buyers. Over the years, I’ve seen some traditional agents do a disservice because of their inability or unwillingness to consider creative, investor strategies in some situations. Here are some examples of when an investor strategy or creative agent can help a seller:

1. Seller with equity facing imminent foreclosure.  Many real estate agents do not know what to do to help a homeowner facing foreclosure and yet this is when a seller most desperately needs help from a professional. I’ve seen agents list a property days away from foreclosure with no clue of how to postpone a foreclosure date.  Bad idea! How many traditional transactions can be completed in a matter of days with a foreclosure pending? In this case, the best option for the seller might be to sell to an investor often with creative terms such as Subject To. At the VERY LEAST, an agent needs to be familiar with the strategies for postponing the foreclosure sale to buy the seller more time.

2. Seller with no equity facing foreclosure. This one is even more dire. A Subject To sale to an investor may still be a good option for this seller. Alternatively, a short sale listing may be the seller’s best option. What is not a good option is listing the house for what the seller NEEDS rather than actual market value.  Another bad option is to do a short sale listing with an agent who doesn’t understand the short sale process. That is a nightmare scenario for all parties involved!

3. Seller with major repairs needed. Many agents visit sellers with the intention to advise them on what to do with the house to sell for top value. While on it’s face this may seem like a good idea it does not take into account the seller’s need. I’ve visited many sellers who told me they consulted with an agent prior to calling investors who told them the property could not be listed until X,Y, & Z were completed.  All houses are sellable as long as the price is right! I’m less concerned with how my listing portfolio looks than finding the right solution for the seller. Again, being familiar with investor strategies will allow an agent to evaluate the value of the property in its existing condition (ARV x 70% minus repairs) and effectively market to investor buyers.

4. Investor Client Wanting to Buy! This sounds like an easy client to take care of but if you are awake and paying attention you will know that in the current market finding a property priced appropriately for an investor can be a challenge. All four of Texas’ major metro’s are experiencing months on months of low inventory and investor guru’s and clubs are churning out new investors every day making the market all the more challenging. You are not going to find a juicy deal on the MLS willing to wait for your client’s loan to be processed. By being familiar with investor purchase strategies, getting plugged into the investor community and understanding how to identify and vet potential deals you will be more likely to locate potential properties for your investor client as well as teach them new methods for leveraging their money and buying more property.

At StepStone Realty, we proudly call ourselves the Black Sheep of the real estate world. Caught between the investors who think getting their license would hamstring their investing and Realtors who think what investors do is unscrupulous and we are the ones armed with all the tools and knowledge to not only help our clients and customers to a higher degree but also with the knowledge on how to build wealth for ourselves while we are at it!

If you want to learn more about being a Black Sheep shoot us an email at recruitment@stepstonetexas.com and ask for an invitation to one of our upcoming Agent MasterMind lunches.