QA10: Once You Agree A Potential Lease Option Agreement Secured With A Vendor, How Do You Actually Package This And Sell It On?
This is the tenth episode in our special Q & A Series. We look at how to package and sell on a lease option deal you’ve secured from a vendor.
- Teaser brochures
- Promote to investors
- Sign an NDA
- Qualifying investors
- Confirm payment agreement
- Investors solicitor to pay your fee
Mark: Okay, so John’s question here was once you agree a potential lease option agreement secured with a vendor how do you actually package this and sell it on? So, what we do and what I will assume here, John, is that when you say lease option agreement has been secured with a vendor that you’ve secured it with the relevant paperwork. So, what we would do is we would initially put the financial information together in the form of a teaser brochure. And what I mean by a teaser brochure is it doesn’t give the property address, it gives limited information so that people can’t find out where that property is or what it is or approach the seller directly or the owner directly. So, the teaser brochure usually has a couple of photos, a bit of basic property summary and the financial summary, the key information to that investment deal. So, similar to what we discussed earlier in terms of what an investor wants to see, things like the purchase price, how many years they’ve got to exercise the option, the monthly cash flow, the expected rental income, that sort of thing.
So, once you’ve sent this to your investor list and obviously post it in various property groups, Facebook, LinkedIn, wherever you want to post it, that will get interest for you, so that will generate interest from interested parties. Now, like I mentioned before, remember, a lot of people will say, “Send me the details, send me the details, send me the details,” and just waste a lot of time, so that’s why you want to just be very careful when you’re qualifying your investors. So, once your investors come back to you from the basic information and tell you that they are interested, they want to see more information or they want to view the property, what you need to do is before you send them the full brochure, before you arrange any viewings or any further sort of involvement, you need to make sure that you either get a Non-disclosure Agreement, an NDA signed, or a sourcing contract, so you can have a sourcing contract signed as well.
And make sure that you qualify the investors. So, just ask for proof of funds, ask for an agreement in principle, ask for their ID. Because if they’re serious about investing, you’ve not asked them for any money yet, remember, but what you’re asking them to do is make an effort in order to be able to proceed with that deal. So, some people would, and there’s a question later on actually about reservation fees and holding fees. We don’t charge them, but what we would do is we would ensure that there’s a process followed for anyone that came to us that wasn’t on our VIP program, we would make sure that they follow the process of signing a sourcing contract and sending us all their proof of funds, agreements in principle, IDs, just to make sure that they’re serious. Once they have sent you all of that, you can send them the full brochure and arrange to view the property, as of course the agreement’s already secured with the seller, you’ve also now secured your buyer, and then you can send them all the information.
Make sure that at this stage you’re confirming the terms and conditions for how you want your fee paying. So, this would be any sourcing contract, but if you didn’t have a sourcing contract you can simply email the terms and conditions if you then charge a reservation fee after you’ve had the NDA signed and they’ve seen details and they want to proceed, and just make sure that that’s very clear, when the fee is meant to be paid, who’s going to pay it, how it’s going to be payable, how much is paid. And just make sure you get a response from the investor to confirm that they completely understand those terms. And that really is how you actually package and sell any deal on really. Needless to say, the information that’s on each teaser is based on the deal itself but then the process itself then trying to find an investor for the deal tends to follow that exact basis.
Brad: Okay. How long on average would this entire process take? Would it go over the 90-day lock-out agreement?
Mark: It shouldn’t, no. So, if you are doing your job properly and the deal’s a good deal you will find investors for the deals almost overnight. And you need to make sure that the investors are aware of the urgency of the transaction. So, just remember, the 90-day option to purchase agreement was for a BMV purchase, so there aren’t necessarily time scales put on these things depending on the different ways that you secure deals. So, don’t think that every deal is secured in exactly the way that we went through the previous question which was specifically related to a BMV purchase. So, here you agree a potential lease agreement which is secured with a vendor, and what that lease option agreement is we’re going to have heads of terms that confirm the terms of that lease option agreement. That in effect gets you the time to then go and find the buyer, the investor for those deals.
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