Miscellaneous RE
TOPIC: MISCELLANEOUS
ROFR Dagger: When you sell a property and carry back the financing -put a right of refusal in there to buy back the property if they ever try to sell. You can frame it as, “At anytime in the future if you decide you don’t want the house, I’ll give you your down payment and principal back.”
Solve their Cashflow problem. You can even absorb negative cashflow if you can get credits on the lease payment toward the option or a major credit toward the purchase price of the option or an option on their family’s house, or equity in something.
Useful ASSIGNMENT Clause with Seller: Buyer has an unqualified right to assign its rights under this contract to a third party. No notice to the Seller of an assignment is necessary. Such an assignment will create a novation and release the original Buyer from this contract and substitute the assignee in its place.
When tying up a property and then getting UC with a BUYER on Prospect, use the following disclosures: “This property is available via our Assignment Program. We have entered into a purchase contract with the current owner to buy the property for $________ (this price includes payment to the owner and all associated fees and estimated closing costs) and for an assignment fee of $_______, we will sell our rights in this contract to a third party. A reputable title company and/or attorney will be enlisted to handle the closing and transfer of title.” AND/OR: Simultaneous Close and Disbursement. Seller represents to Buyer that Seller has acquired title to the property pursuant to a pending sales contract with the Fee Owner and is simultaneously conveying title to the Buyer. Buyer authorizes Seller and Closing Agent to disburse closing funds toward the Seller’s purchase of the property.
ALWAYS Use a Cross-Default Provision (Zeckendorf Clause): Notwithstanding that this Option Agreement and the Lease Agreement between the parties are separate and independent contracts, the parties agree that they are intended to be interdependent and mutually contingent. Therefore, it is expressly agreed that any material default by the Optionee (Tenant) under the Lease Agreement, including but not limited to nonpayment of rent, unauthorized use or occupancy of the premises, failure to maintain the property, or any other breach of lease terms, shall constitute a default under this Option Agreement. In the event of such a default under the Lease Agreement, the Optionor (Seller/Landlord), at its sole discretion, shall have the right to declare this Option Agreement null and void and of no further force or effect, without refund of any option consideration or credit toward purchase, and without further notice or opportunity to cure unless otherwise required by law. The termination of the Option Agreement pursuant to this provision shall not limit the Optionor’s right to pursue any and all remedies available under the Lease Agreement or applicable law. The Optionee acknowledges that the enforceability of this Option Agreement is expressly conditioned upon the Optionee’s full and faithful performance of all terms, covenants, and conditions set forth in the related Lease Agreement. The parties further agree that this provision is material to the granting of the Option and reflects their mutual intent to prevent the separation of leasehold obligations from the right to purchase.
Think and ask in terms of PV. When selling an income stream, always ask another investor, what is the present value of this instrument or income stream worth to you today? What cash would you pay for future income? For me, what cash would I accept for future income? Would I sell my future for money today, or vice versa?
You can and should at times SELL something to raise cash instead of borrowing. You can sell to raise financing, lease back for a while, and buy an asset back by retaining an option when the time is right. Sell to raise cash. Give the buyer or investor a good yield too when you do come back to buy. You can also sell an OPTION which freezes their investment and gives them a big equity cushion and then BUY back the option when the time is right.
The Note/Option SPLIT play (‘life support’): I’ll LEND you the money to cover your cashflow problem for 5 years. I’ll lend it each month instead of giving you money lump sum up front. So it’s an installment loan, which I’ll write you a promissory note for. I could secure my performance under that Note to something like my own real estate so it’s a sellable note. But in total, there’s TWO instruments: the LOAN that I’m giving you at say 10% or 12% interest (accruing and will ultimately be paid out of your half) AND the Option that gives me half of the upside from today forward. But if I decide to stop paying on the Option, I only lose my equity position for future appreciation. I don’t lose the Note, or the total principal that I’ve lent to you which still is a secured lien on the property.
You’ll often see *“secured by/with ____”* When we say “I’ll secure it with ___” what we’re really saying is this Note or Lease or Promise is BACKED UP with another asset that will be given to you if it fails. Whatever that asset is, is forfeited to the holder.