Residential Lease With Option Agreement

[Craig 0]

Would someone clarify a few items with this contract

 

Line item 13 B. Option to Purchase:

 

The contract reads:

 

B.) Seller/landlord agrees that upon exercise of the option to purchase, Buyer/Tenant shall be credited with $_____ from each monthly rental payment of $______and applied to the purchase price.

 

I thought the investor is responsible for the holding the rent credit and therefore would credit the Buyer/Tenant at closing. If so why is it stated here in this contract between the landlord and the investor?

 

Line item 14.

Buyer/Tenant will deposit with Seller/Landlord the amount of $_______ as option consideration for the above residence. This option consideration will be fully credited toward the purchase price.

 

Why is this line in this agreement if the option moneys is paid to the investor and as is credited back to the Seller landlord at closing? Isn't this an agreement between the homeowner and the investor only

 

Line item 18. Escrows

 

What money is going to be escrowed? Is that the option money and rent credits from above?

[-Tony- 0]

Its hard to reply, I don't know which contract you are talking about. Sorry, I don't have a copy in front of me. Please clarify and I will help.

[Kimberly 0]

Lease with Option? This is used ONLY for sandwich leases. This is between you and the seller. You would use the Residential Lease and the Option to Purchase between you and your tenant/buyer.

B.) Seller/landlord agrees that upon exercise of the option to purchase, Buyer/Tenant shall be credited with $_____ from each monthly rental payment of $______and applied to the purchase price.

 

I thought the investor is responsible for the holding the rent credit and therefore would credit the Buyer/Tenant at closing. If so why is it stated here in this contract between the landlord and the investor?

Rent credits really aren't something you hold -- like in a savings account. It's more like Monopoly money. It'll only become a real thing to deal with if and when the tenant/buyer closes on the property.

 

That line is in there in case the seller is willing to give rent credits. Most of the time you won't get rent credits from a seller in a sandwich deal. So both blanks would be $0.00. You just try to negotiate the best deal and terms that you can.

Line item 14.

Buyer/Tenant will deposit with Seller/Landlord the amount of $_______ as option consideration for the above residence. This option consideration will be fully credited toward the purchase price.

 

Why is this line in this agreement if the option moneys is paid to the investor and as is credited back to the Seller landlord at closing? Isn't this an agreement between the homeowner and the investor only

In a sandwich deal you will probably be giving the seller some option money, even if it's only $10.

 

Yes, this agreement is between you and the seller ONLY, and is for a sandwich lease.

[Craig 0]

Thanks Kim. That's the correct contract. Its clear now.

[Sold ! 0]

Most of the time you won't get rent credits from a seller in a sandwich deal.  So both blanks would be $0.00.  You just try to negotiate the best deal and terms that you can.

 

 

You can try to negotiate a deal below FMV or you can raise the selling price to reflect future appreciation.....or both. That creates a spread from which you can comfortably take your option consideration as your fee and also structure in some rent credit. There should never be a time when you do NOT have some form of rent credit for these reasons.

[Kimberly 0]

Most of the time you won't get rent credits from a seller in a sandwich deal.  So both blanks would be $0.00.  You just try to negotiate the best deal and terms that you can.

 

You can try to negotiate a deal below FMV or you can raise the selling price to reflect future appreciation.....or both. That creates a spread from which you can comfortably take your option consideration as your fee and also structure in some rent credit. There should never be a time when you do NOT have some form of rent credit for these reasons.

<{POST_SNAPBACK}>

 

Rich,

 

You're correct about fees and rent credits for a Cooperative Assignment. The contract he was refering to was the one between him and the seller in a sandwich lease. (There would be a separate lease and option between him and the tenant/buyer on a sandwich deal.) While most on this board are going to give their tenant/buyer at least some rent credits, your NOT receiving rent credits from your seller is, unfortunately, rather common.

 

If you're doing a sandwich lease, you want a chunk of profit there at the end -- your reward for staying in the middle of the deal. To get that you need to get the homeowner down as low as you can -- strike price and terms. If you start asking the seller for rent credits, after beating them up on price and terms, they're liable to say, "no."

 

Kim

[Sold ! 0]

Kim,

 

Agreed on everything. I am thinking in terms of CA's and probably misread the question. Yes.......to make the deal attractive to the TB, you are going to find rent credits to offer him SOMEWHERE. Talking with the seller about them in a sandwich is deal suicide, most likely.

 

Although, in a CA, you're going to write them into the original contract, right? You need to create them from a higher selling price to the end buyer, but you're not going to keep them secret from the seller.

 

Emphasizing NET to the seller at closing is the key, I'm convinced. MC has said it many times and it's true ! I have a little comparison chart that shows the net at close of a couple different methods and if the seller is thinking straight, he'll see the advantages of working with me. If he's not thinking straight, I don't want him anyway.

[Kimberly 0]

Although, in a CA, you're going to write them into the original contract, right? You need to create them from a higher selling price to the end buyer, but you're not going to keep them secret from the seller.

Correct. When it comes to that point on a CA, you explain that you'd already calculated in the rent credits when you told them what they'd net. Then I'd further explain why you use rent credits -- to get a tenant/buyer into their property quickly.