1. ALTERNATE EXIT STRATEGIES

2. Selling on Rent to Own/Lease Option Session 21 ALTERNATE EXIT STRATEGIES

3. SELLING OR RENT TO OWN / LEASE OPTION Why Sell on Rent To Own? Long Term Wealth is created by Owning High Quality, High Equity, Passive Cash Flowing Assets like businesses and real estate.

4. “Wealth is not acquired through addition. It is acquired through multiplication. Very few fortunes have been made by adding up paychecks and overtime. Nor are they made through a huge one-time killing in the markets. Unfortunately, this is the path that many investors try to follow in achieving financial security. While a high annual income is certainly helpful in achieving great wealth, it is not the primary determinant. And while a major move in the market can certainly have an impact, any single move is rarely an important determinant of sizeable fortunes (unless that major move is responsible for wiping an investor out and terminating the ability to continue investing in subsequent years). According to statistical studies, two factors are most important in achieving wealth: 1) The number of years that an individual has been consistently saving and investing 2) The proportion of funds, on average, allocated to higher return investments such as stocks - Passive income real estate” ~ John P Hussman, Ph.D.

5. THE BIG 4 THINGS (YES, THAT’S CORRECT – 4) THAT SELL HOMES FAST… PRICE We set a price that is fair, market supported and attractive to buyers. CLEANLINESS / STAGING This is an often overlooked, critical component in selling a home. The property CANNOT need any updates or repairs. Needs to be in Perfect Condition to sell for TOP DOLLAR! MARKETING Simply put, our Property Launch Marketing will astound you. CREATIVE FINANCING Offer the property with creative financing. “NO BANK LOANS NEEDED”

6. $150,000 – List Price (Realistic Saleable ARV) Drop price, drop price, drop price! $132,000 – Sale Price -$8,100 – 6% Commission to both Agents -$4,000 – Seller Closing Costs -$4,050 – Seller Concession 3% ($16,150 – Seller Costs) $115,850 - Net Check from Title Company Remember this number because we will come back to it. What Are Your Into It For? SCENARIO: RETAIL SALE OF $40K FLIP

7. SCENARIO: RENTAL $150,000 – List Price Drop Price, Drop Price, Drop Price! Decision To Rent It Market For Sale Craigslist, MLS, Post, Repost Ads Daily Show Property Over and Over - Deal With No Shows and Time Wasters 30-90 Day Vacancy Looking For A Tenant Screening: Credit Verification, Job Verification, Criminal History, Reference Checks Then Collect The Rent and Chase People Down And Hope They Don’t Destroy Your House

8. SELLER LANDLORD: EXPENSES WHEN RENTING 8% Vacancy Fee One Month Vacancy At Least 1 Mo Out Of 12 House Will Be Vacant Every Month Vacant Is Money Lost 5-10% Management Fee Property Management Company Example $75 - $100 A Mo Per Unit 5-10% Maintenance Fee Including Water/Sewer/Grass/Snow/ Garbage Pick Up Appliances

9. WHAT IS A LEASE WITH OPTION TO BUY? 5 4 1 3 2 Rental Agreement Plus A “Pre-Agreed Upon” Sale Of The Property In The Next 6 To 24 Months Buyers Put Non- Refundable Option Money Down That They Don’t Want To Loose Buyers Are Responsible For All Upkeep, Utilities, Repairs and Maintenance. Buyers Get Approved For Mortgage And Buy ASAP

10. Banks are still tight with lending criteria, so there’s an abundance of buyers who want the rent to own option They have cash with damaged credit They are not as choosy as a retail buyer and willing to accept the circumstances and get into nearly any home that’s offered as rent to own) There’s an abundance of buyer’s repairing their credit from foreclosures during the melt down According to Federal Reserve: WHY ARE LEASE OPTIONS WORKING? 31% of all Home Loan Applications are Declined

11. 1.Undocumented income 1099 income or income “under the table” 2.Undocumented Rent Payments Rent paid in cash 3.Debt to Income Ratio above 42% 4.Prior Foreclosure or Bankruptcy In the last 3-5 years 5.Credit Score below 640 Without compensating factors such as big down payments 5 REASONS WHY HOME LOAN APPLICATIONS REJECTED?

12. TOP 3 SELLER QUESTIONS: WHEN SELLING ON RENT TO OWN What If Major Damage Occurs? 1.Mindset – The Buyers are “Owners” not renters 2.They actually improve property 3.Mentality - Why would I purposely damage my own house 4.Skin In The Game - Large down payment 5.Hazard Insurance – landlord and renters policy 1.They move out with notice 2.Just re-sell it 3.Seller keeps the option deposit Midnight Move Out Money Collection {Rent and Monthly rent} 1.Angelo Russo, Avalon Escrow Company ($50 a mo.) 2.Title company can collect 3.Property Management Company

13. Rental Agreement 1 Year, With 1 Year Option To Continue Utilities Included And Paid By The Buyer 10% Late Fee If Rent Paid After 5 th Of Month Option Money $5,000 or 5% Of Purchase Price which ever is higher Future Purchase Price Seller Typically Gets Full Asking Price Rent Credits 10% Of The Rent Rate Incentive For Tenant Buyer To Pay Rent On Time and Eventually Buy Commission Paid By The Seller ½ of 1 st months rent + 3% when it transfers (Attach a Broker’s Lien) 5 PARTS OF A LEASE OPTION CONTRACT

14. TENANT BUYER WRITES 2 CHECKS ALL CHECKS PAID “AVALON ESCROW” Option Deposit Applied as Down Payment First month’s rent – Ex: $1,250 Rent Credit - 10% per month Applied Reduces the Sales Price OR Applied To Down Payment OR Applied to Closing Costs

15. The Real Estate Attorney or Property Management Company handles the payment collection. Protects the seller and buyer Makes buyer pay on time (ACH withdraw) Makes sure seller pays the mortgage and doesn’t go into foreclosure The Real Estate Attorney or Property Management Company charges $50 month. Buyers pays for this service THE CLOSING

16. Once a buyer realizes they can own instead of rent they will beat down our doors to own your home. All Interested Buyer’s MUST pre-qualify with our Mortgage Company so we can control their Credit Repair and ultimate purchase. NATIONS LENDING CORP CREDIT REPAIR RESOURCES We tell buyers: “If you want to tie up this property, you need to put down $1,000 in earnest money to lock it up. Are you ready to lock up this property?” THE HOOK FOR BUYERS

17. $150,000 Future Sale Price – FULL ASKING PRICE -$7,500 Now – Option Deposit Non- Refundable -$4,000 Seller Concession 2.5% To The Buyer (rent credits) -$4,000 Seller Closing Costs -$4,500 Sellers Agent Commission (3% Of $150k) = $130,000 NET PROCEEDS From The Sale In The Future +$7500 TODAY From Buyer = $137,500 NET PROCEEDS In Their Pocket + “Margin Over Payment” $250 /Mo For 2 Years = $6,000 Cash Flow Proceeds + Principal Pay down = $200 / Mo = $4,800 Principal Pay Down + Depreciation = 3.5% Value = $5250 BENEFIT!!!!! Per Year!!!!!!! $3500 Tax Savings = $10,500 - 35% Tax Bracket (Includes Fed, State and Local) = $151,800 Net Net Over Course Of 2 Year Agreement – + lower tax bracket @ capital gains rates vs. ordinary income rates **All number are approximate. SCENARIO: LEASE OPTION SALE

18. $150,000 – List Price (Realistic Saleable ARV) Drop price, drop price, drop price! $132,000 – Sale Price -$8,100 – 6% Commission to both agents -$4,000 – Seller Closing Costs -$4,050 – Seller Concession 3% ($16,150 – Seller Costs) $115,850 - Net Check from Title Company Remember this number because we will come back to it. What Are Your Into It For? Scenario $82,000 + Funding Partner @ 12% ($3,280) = $85,280 Net Profit = $115,850 - $85,280 = $30,570 THIS DOESN’T SUCK! But……. SCENARIO: RETAIL SALE

19. LEASE OPTION SALERETAIL SALE SCENARIO: LEASE OPTION SALE $115,850 Net Check from Title Company Remember this number because we will come back to it. **All number are approximate. $151,800 Net Net Over Course Of 2 Year Agreement + lower tax bracket @ capital gains rates vs. ordinary income rates

20. 1.Buy And Fix With Private Money 2.Launch The Property Advertise “For Sale” & “Rent To Own” 3.Secure A “Rent To Own” Buyer Contract & Close 4.Apply To a Freeland Lending Affiliate Lender for a Bridge Loan or A Local “Brick and Mortar” Bank & Complete A “Refi” They will want to see the property is occupied They will typically lend 70% of the ARV Bridge lenders usually do not have a seasoning requirement or a credit requirement 5.Payoff Private Funding Partner with Bank Loan Go from 12% to 16% interest down to 10% (bridge) / 5% (conventional) ALTERNATE EXIT STRATEGIES

21. Go to the “Brick and Mortar” Bank & Complete A “Refi” Banks will want all the normal mortgage info ALTERNATE EXIT STRATEGIES AssetsIncomeW-2’s Good Credit (600+) They like high equity The prefer 6 months of ownership prior to “refi”

22. Go to the “Bridge Lender” and bridge lender will not want all the normal mortgage info but they charge higher interest rates because they don’t give you the financial shake down. ALTERNATE EXIT STRATEGIES AssetsIncomeW-2’s Good Credit (600+) They like high equity The prefer 6 months of ownership prior to “refi”

23. Local And Regional Community Banks “Who Portfolio Their Own Loans” First Fed of Lakewood 3 rd Federal Catholic Credit Union, Vacation Land Credit Union Do Not Go To The Large FNMA, FDMC Lenders They Can Only Loan Up To 10 Per Borrower Local Regional Banks Will Do 30 Loans Per Borrower or More Local Regional Banks Will Lend To LLC’s or Corp’s Local Regional Banks Will Lend $3.0 Million Plus To One Borrower ALTERNATE EXIT STRATEGIES

24. First Federal Lakewood Up To 15 Loans Per Borrower 70 - 80% LTV Refi Based on After Repaired Value ALTERNATE EXIT STRATEGIES

25. Every $100,000 Financed = $750 a month payment for P.I.T.I. RULE OF THUMB ALTERNATE EXIT STRATEGIES

26. 9760 RIDGE ROAD REFERRED TO US BY A WHOLESALER Purchase Price$76,000 Rehab $15,000 Private Money $100,000 Cash Back at Closing $24,000 Cash in Pocket Up Front$9,000 Cash Out Refi $169,900 Appraisal 80% Refi @ $135,000 (Paid off Private Lenders) Sold on Lease Option 4 times $20,000 down $11,000 down $5,000 down Sold in 2 days $139,900 FULL PRICE Net Profit $34,910 + $41,000 Deposits Total Actual Net Profit$75,910 Goal $40,000

28. None of My Own Cash or Credit Short Sale Owed $139,000 Paid $30,000 Improvements $1,000 Investment $31,000 Private Money $31,000 Sold $55,000 Should Have Sold $80,000 Net Profit $18,456 Total Days 4 months Purchase to Paycheck 3332 MARMORE AVE.

29. Mortgage $300/ mo. Rent $800 / mo.+ Net per Year $500 / mo. Could have paid off in 5 years Should have kept it! 3332 MARMORE AVE.

30. ALTERNATE EXIT STRATEGIES Marketing Strategies for Rent To Own Buyers I Hire a Real Estate Agent To Do All My Rent To Own Marketing You Should Too “For Sale / Rent To Own” Commission = ½ of 1 st months mortgage payment + 3% when it closes (in 6–24 months)

31. Listing Agent is Responsible For All My “Rent To Own” Marketing MLS Listing goes in “For Sale” & “For Rent” Sections of MLS All the Same Strategies we use in Property Launches and our 67 Point Marketing Plan MLS & Realtors, Pay Per Click Advertising: Google and Facebook Websites / Property Syndication, Craigslist, Backpage, (For Sale & For Rent Sections) White Corrugated Signs JUST ADD: “BAD CREDIT OK / NO BANK FINANCING NEEDED / BUILD EQUITY AS YOU RENT!” ALTERNATE EXIT STRATEGIES

33. Qualifying Rent To Own Buyers Application Applicant Pulls Their Own Credit and Gives Us Their Credit Report Verify and Check Jobs Check Previous Landlords $5K or 5% Down (whichever is greater) at minimum

35. Qualifying Rent To Own Buyers Earnest $ Deposit $1,000 Down (credit towards purchase) When they write the contract they cut a check ALTERNATE EXIT STRATEGIES

36. Provide All Potential Buyers a Disclosure Document Required by Real Estate Law What’s wrong with the property? (if anything)

38. ALTERNATE EXIT STRATEGIES Once Letter Of Intent Is Signed It’s Handed Off To Closing Attorney Closing Attorney Creates The Rental Agreement And Option To Purchase Agreement Closing Attorney Also Sets Up Auto-draft From Buyer To Pay Sellers Mortgage Closing Attorney Distributes Money Based On “Disbursement Sheet” (similar to HUD 1 for “table top” closings)

44. VIRTUAL $40K FLIPS AND LEASE OPTIONS

45. 6264 W. 54 TH STREET Purchase Price $45,000 Improvements $12,000 Total Investment $57,000 Sold for $85,900 Equity$28,900 Rent To Own$850 / mo. Positive Cash Flow $400 / mo. Bought and Sold By Shlomo T. From TEL AVIV, ISRAEL!

46. $40K FLIPS IN ACTION FOR SCHLOMO His Realtor / Property Scout bids blind on properties in his “sweet spot” Once his contract is accepted he has 7 -10 days to do his due diligence He has an inspector do his due diligence for him Shlomo surfs the internet for deals using the website I gave him (and you) His Realtor is also his “Property Scout” - getting access to all the realtors inventory, special deals, pre-market inventory, HUD homes, bank and government listings before anyone else.

47. His Title Company does all his due diligence for him = Current Market Analysis, Title Work, Previous Sale History etc. His Contractor tells him what the repairs will be in less than 25 minutes. His inspector double checks the repairs. His “Money Partners” fund the deals $40K FLIPS IN ACTION FOR SCHLOMO His Contractors do all the minor “fix up work” to FORCE THE APPRECIATION His Realtors run the Property Launch and find buyers and rent to own buyers His Title Company and Closing Attorney (the one who does the due diligence) close the deals

48. 538 High Street Case Study: MLS sale: Small Commercial Purchase to Rehab and Rent 538 High St Purchase Price:$41,500 Repairs, Ins, Utilities, Mktg :$19,000 Total Loan Amt.: $46,000 (closing costs rolled into loan) *Rehab paid for by Borrower: ARV: $130,000 LTV:35% Money Down: 0% Down Single Family + Commercial Building + Lot

49. Office Hours Q&A