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Hey, it’s Joe. Got another question about real estate investing. This is from David Botello. Hope I pronounced that right, David. “I have a question about the For Rent Method. Since your lease option memo allows for the seller to approve of the tenant buyer and since there is a clause in your lease option memo allowing for the seller to terminate the agreement in the event that he finds his own tenant buyer, what is to stop the seller from taking your buyer and cutting you out of the deal? Also, why would the sellers not require a security deposit from the tenant buyer like they would with a regular tenant?”
Well, there’s nothing that keeps them from stabbing you in the back. As a matter of fact, I tell my sellers this is a stab me in the back contract. This allows you to stab me in the back. You know, I wrote it this way so that you would be comfortable signing it, so that you know that there’s no risk on your part. I know that most people are honorable. Most people are honest and they’re not going to stab me in the back. And so, and I tell this to the seller, because I want them to know that if they do stab me in the back, but that’s, if they do go around me, they are stabbing me in the back. And that’s why I make a point of this. But, I know that most people aren’t going to stab you in the back, but some people will try.
The reason that people stab you in the back most of the time, is not because they’re trying to screw you out of money, it’s because they’ve lost faith in you. They don’t trust you, they don’t think it’s going to get done. They’re irritated with you, you’re not following through with the things that you promise that you’re going to do. If you do all the things that you promise you’re going to do, you live up to your end of the bargain, most of the time they will live up to theirs as well. If you haven’t, if you’ve lost their trust, if you’ve screwed something up, if they don’t think that you’re going to do the job, then they may try to get around you or you know, talk to the seller directly, or to the buyer and seller directly.
Now, I try to keep my buyers and sellers apart until it’s time to close the deal, and then I try to collect the money and get all the signatures done and then I pass that money between them without them ever even really meeting, most of the time. And that solves a lot of those problems. I don’t have my sellers show the property, although I have some students who do have the sellers show the property and they don’t always have problems with it. They don’t usually have problems with it. Although the ones that I’m thinking of, they’re usually pretty good and they can talk to their seller and that seller’s going to work with them and they’re not going to cheat them because they have faith and trust in the guy that’s doing this.
He also asked here, “The sellers, why don’t they require a security deposit?” Many sellers will ask for a security deposit and there’s a couple of ways you can do it. One, you can give them a security deposit and if you do that, let’s say you’re making $5,000 on a deal and the security deposit is $1,500, and you give them a security deposit, you just gave away a third of your income to this guy because he asked for a security deposit. What I would suggest is learn how not to give a security deposit by talking to them about it. Say you know, we don’t do security deposit on these. This is different. This is a lease option so you don’t get a security deposit. But you don’t have to give them back that money at the end, either. And you get somebody a lot quicker that can move in to this property. So, typically you don’t have to give a security deposit. You don’t have to agree to do it.
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