[Nathan Kenny]

Nathan Kenny

I would like to hear from some of our more experienced investors, what exactly is a performance lease, its advantages/disadvantages and how does one profit by using it?

[John Long II]

John Long II

Nathan,

A performance lease is typically used in place of a property management agreement. So you would go to a homeowner and offer to lease their house with the understanding that you are going to sub-lease it to a tenant. You agree to pay the owner a percentage of what you are able to collect from your tenant. This is a great set-up if you are just getting started and need guaranteed cashflow. Ideally you’ll want to try to get an option on the property so you can also capture future appreciation.

I hope that helps!

John

[DON WEDE]

DON WEDE

Nathan:

To make a performance lease a no loose situation for you put in your documentation that payment to your lessor is contingent upon payment by the sub-leasee. In other words when they pay you then you pay your lessor.

I have also done this with some of my investors were they are in the deal with me for more than a standard yield. In a deal were they get part of the upside in the property (equity participation mortgage). If the tenant, contract buyer, or mortgagee pays then we get paid. If their is a vacancy then we both wait it out until it starts cash-flowing again.

Don Wede

[Anonymous]

Anonymous

Nathan,

I;ll add this to John’s excellent explanation… with a performance lease, you only have to pay the owner when you actually collect rent. So you don’t get stuck making payments on a vacant house.

A master lease would allow you to get greater cash flow but, you agreed to make payments every month after a certain date, whether the tenant is paying you or not.

So, a performance lease is more risk free.

The option is great to get up front. But you can also do a performance lease without an option at all…. or you can get it LATER.

Try a performance lease, you’ll like it.

Jackie

p.s. If you look in the Landlord section of the Learning Center, there is some great info about these kind of leases. Watch the Video of David Tilney as he talks about using performance leases … he teaches the PREMIER class on Master and Performance Leases and Hassle Free Property management.