"Liquidated damages clause"

[dreamer 0]

In my area (long island, NY) we are in a real sellers market with real estate at its highest levelsin quite a few years.

 

consider this:

 

What happens if the housing market changes course and property values were to decline 5-10% over the next few years?

 

You'd now have a bunch of t/b's who could no longer excercise their options. If you're lucky you'll be able to L/O the properties again to someone else at a lower price hoping to break even on your cash flow.

 

Would a simple "liquidating damages" clause protect you from this? From what I understand you would be able to walk away from the deal and the seller would keep any money paid to him as your total liability.

[Adam King (MI) 1]

Dreamer,

Yes, you can have a clause (Which I do) in your agreements that you will give all of the option money back plus $500 if you cannot perform. But, I would simply lower the price if there were enough room to at least break even. The tenant/buyer will never argue with you about getting the house for cheaper.

 

Moral of the story....

 

Do you due diligence. KNOW YOUR MARKET and you won't have to worry about this.

Hope this helps,

Adam

[MichaelC 160]

consider this:

 

What happens if the housing market changes course and property values were to decline 5-10% over the next few years?

dreamer, just one of the many advantages of controlling a property, versus owning it. If values decline, the owner is on the hook, not me or you.

You'd now have a bunch of t/b's who could no longer excercise their options. If you're lucky you'll be able to L/O the properties again to someone else at a lower price hoping to break even on your cash flow.

I wouldn't say the "t/b's could no longer exercise their options." They could if they came up with the additional funds, obviously. However, that is their concern and financing issue, not ours, (another lease purchase advantage: no financing requirements). On the other hand, if cooler heads prevail and all parties cooperate, terms can be adjusted to make everyone happy, usually.

Would a simple "liquidating damages" clause protect you from this? From what I understand you would be able to walk away from the deal and the seller would keep any money paid to him as your total liability.

Probably. I have a clause that says in the event I default on my agreement with the seller, they agree that any money received to that point is the limit of my liabilites.