CA Option Money

[MichaelC 160]

I think I could also give the Seller a price range on selling their house instead of a specific number. This would leave things flexible until the tenant/buyer comes on board.

That's exactly right, Steve. Depending upon the final numbers of the deal with the t/b, the homeowner's net may vary by a few thousand dollars. For example, you may anticipate receiving $3K option money from a t/b, only to be pleasantly surprised and receive $5K instead. Well, this means the homeowner's net has been reduced by $2K. If it falls within the range you quoted, it shouldn't be a problem. He is still coming out thousands ahead than he would otherwise. Explained like this, the deal should fly most times.

[Sold ! 0]

MC,

 

I see your confusion with this statement:

Perhaps we even negotiate with the seller to pay the next 4 payments on his mortgage while we find him a TB, and the payments are $1500.00 A MONTH ($6000.00 TOTAL FOR 4 MONTHS). BUT, Why would he agree to this?

 

Here's what I meant it to say and it should have read like this:

 

"Perhaps we could even negotiate with the seller FOR HIM to pay the next 4 payments on his mortgage while we find him a TB, and the payments are $1500.00 A MONTH ($6000.00 TOTAL FOR 4 MONTHS). "

 

When you asked:

But why would you ever offer to make the homeowner's next four mortgage payments? You're not in this business to make payments on vacant properties, or to have the homeowner's problems become your problems

 

I wasn't offering to make them. I was negotiating for HIM to continue to make them while I found a TB. Therefore, he's only going to be out 4 months payments ($6000.00 max), as opposed to 4 months payments AND Real Estate commision ($12,000.00) AND closing costs ($6000.00).

 

That's how I'm saving him $16,000.00 or more. WARMER??

 

Can you hear me now?

 

 

[MichaelC 160]

Can you hear me now?   

Loud and clear! That makes sense. And, by the way, with some exceptions of course, it won't usually take you four months to find a t/b. Offering sweet terms, such as a generous rent credit, will usually get the phone jumping in no time. I'll beat the local Realtors to the punch every time.

[Guest Guest]

MC,

 

When I am negotiating with the seller, where does that rent credit come from? Does it come from a spread I can create due to appreciation? Does it come from his potential profit if we are just talking about his asking price or the market price?

 

What other incentives and benefits (besides getting somebody in the house faster) are there for the seller to offer rent credits?

 

And, again, I am confused about where they come from.....how do you explain that he's not really losing money here?

 

thanks

[Sold ! 0]

DAD GUMMIT !

 

I keep forgetting to log on from this computer at work.

 

MC,

 

The above post was from me and I still don't quite understand where the rent credits can come from to make sense for the seller unless we have created a spread.

 

Where else and why does it make sense for him?

 

Thanks,

Sold !

[Mr.B 0]

You don't have to offer rent credits. If you have a hard time finding a T/B then you could offer rent credits. You could raise the price of the house to include the cost of the rent credits.

 

I have also heard of some that have asked their T/Bs to pay over and above the monthly lease amount to put towards the down payment.

 

In the end it's really up to you and what the seller will accept as to "where" the money comes from.

 

~Mr.B

[grannyguru 0]

The answer to your question is that where it comes from depends upon how YOU set it up. Or: what all parties agree to do.

 

How YOU look at it is important because that's going to influence how the seller and the buyer look at it.

 

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But let's suppose you do a L/O where you are buying the house from the seller for 200k, and selling it to the T/B for 206k. Let's suppose you collect 6k from the T/B as option consideration, bringing the selling price down to 200k, and the lease runs for a year.

 

Let's further suppose you are giving a 50% rent credit on $1000/month rent, or $500/month in rent credits. $6000 for the year the place is leased.

 

If you are doing a L/O probably the price the seller is getting is above what he would have otherwise gotten. Otherwise he wouldn't be doing the deal with you.

 

Supppose the seller complains what you seem to think: that he is losing $500/month from his equity. You tell him: HE ISN'T LOSING EQUITY! Instead, he's RECEIVING part of his equity early.... Not only that, but he is receiving that equity payment WHETHER OR NOT the tenant ever buys. Cash in pocket. His to play with. No matter what else happens. And that is only part of what makes our L/O so lucrative for him!

 

So: if the tenant exercises the option, the seller then gets THE REST of his equity.

If the tenant doesn't exercise the option, then the seller GETS TO KEEP the part of his equity he got early. And if he wants, to then raise the selling price and the rent and start getting paid MORE equity early.

 

Even better, in the meantime, his getting paid part of the equity early in the form of a rent credit KEEPS THE T/B paying on time, etc!

 

Win win win win.

 

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Now, of course you can also set it up so that, even after the rent credits are paid, the amount owed by the T/B if he exercises the option, is AT LEAST $200k in our example. I have software that calculates that.

 

So in that case, you'd be selling the place to the T/B for $212k. You would collect 6k as option payment, and the rent credits would reduce the remaining price from 206K to 200k. Otherwise known as what you agreed to pay the seller.

 

Now the seller is not only getting his price, but whatever extra the T/B pays him in rent, including rent credits.

 

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If you still have problems with this, adjust YOUR deal to fit. As long as the deal fits the needs of the T/B and the seller and you, and that means the house will appraise at point of sale for enough to cover the loan company's needs.

 

Another, more important point:

 

Without going to all that trouble, people here, especially Michael.... have been doing L/O with rent credits etc. for years, with all parties very very happy with the deal.

 

I know: it's difficult at first. You want to understand and you keep coming up with objections. Trust me; this works! Most sellers and T/B out there are not going to come up with all the objections you can come up with when you are starting; they are just supremely happy to have the property sold, purchased, or whatever!

 

On those occasions you come up with someone that negative, AGREE with him and dump him: move on to the next deal; why share your good news with a jerk?

 

 

It not only works; it is a win win win win win deal all the way around!

 

Alice

[Sold ! 0]

Very good. Thank you all.

 

I thought there might be some formula for all this, but in reality, it's just hammering out a deal where everybody agrees and everybody wins.

 

I understand, now and APPRECIATE the responses. It's becoming more clear for me every day and I guess the secret is to NOT over-think it ! Armed with all this specialized knowledge, we are just so far ahead in our understanding and game plan, we tend to out-think the system. We have all the advanced question because we see all the angles. Sellers and TB's aren't going to go into such deep thought about each side.

 

Thanksfully, through this forum, we have enough smarts to anticipate the questions and come up with the answers long before we hear them.

 

Thanks again !

[Mr.B 0]

Rich, I'm having the same problem myself. I have sent emails, but for some reason I am still overly nervous about using the phone. I have gone over scenarios in my head over and over trying to anticipate questions to try and make sure that I will have the answers before making the calls. I guess in reality most of the people I talk to will accept what I tell them and im probably just over thinking it myself.

 

I'm really going to make some calls tonight though.

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:ph34r:

 

 

~Mr.B

[MichaelC 160]

I thought there might be some formula for all this, but in reality, it's just hammering out a deal where everybody agrees and everybody wins.

Keep thinking like that and you're gonna start doin' deals. That means you're gonna start makin' money. And that means you're gonna start hidin' from the IRS. Be careful.....be very, very careful.....

It's becoming more clear for me every day and I guess the secret is to NOT over-think it !

Precisely! You are tinkering with what we call The Paralysis of Analysis.

Armed with all this specialized knowledge, we are just so far ahead in our understanding and game plan, we tend to out-think the system. We have all the advanced question because we see all the angles. Sellers and TB's aren't going to go into such deep thought about each side.

A beautiful sentiment, Sold!, particularly that last sentence.

Thanksfully, through this forum, we have enough smarts to anticipate the questions and come up with the answers long before we hear them.

Believe me when I say this: you know more than you realize, and you're better prepared to start doing deals than you think. Action, my friend. It comes down to putting all that specialized know how to use.

 

And as for you, Mr.B....

Rich, I'm having the same problem myself. I have sent emails, but for some reason I am still overly nervous about using the phone. I have gone over scenarios in my head over and over trying to anticipate questions to try and make sure that I will have the answers before making the calls. I guess in reality most of the people I talk to will accept what I tell them and im probably just over thinking it myself.

 

I'm really going to make some calls tonight though.

Your nervousness is understandable. There isn't a person on this board, not one, who wasn't a quivering mass the first time they forced themselves to pick up the phone and call a FSBO. Why should you be any different? However, everyone you read about here who is doing deals overcame that fear by going through their comfort zone. It's simple, really. You can't get a deal if you don't make an offer. And you can't make an offer if you don't talk with sellers. And you can't talk with sellers if you don't pick up the phone. Make it easy on yourself. Why not set a goal, tonight, of talking with ten homeowners? Surely, you can do that. Then, post back here in a new thread and let's hear how it went down. Don't worry about anything else. Remember, the goal is to simply talk with ten homeowners. Not get a deal, not get an appointment to look at a property, just yak it up a bit, and ask and answer a few questions. Get that accomplished, and we'll move on from there.