Seller wants $10,000 option money and option price at market rate

[belliott71 0]

Hey everyone,

 

Just talked with a seller who will lease option her house for 2 years and I feel it is a good opportunity for a SLO. However, she wants 10000 option money but is willing to have it paid over a period of time. She is willing give $200 rent credit on rent that is $1450 per month. On a lease without option she wanted 1250 rent. She also said the option price would be determined at the end of the term (60 days prior) and it would be market rate. I thought on an option to purchase there needed to be an option price filled in. She has her own contracts, but I need to look at them and tell her that I would prefer to use mine. It is in a hot area in one of the fastest growing counties in the nation. The main sticking point for me is the option price. Anyone have suggestions as to how you would approach this deal.

 

Thanks

 

Brad

[boazbama 0]

Brad,

 

What is in it for me? Thats what I would ask myself.

Appears the owner is calling all the shots. She wants $10,000 option money and also wants the price to be determined 60 days before the term runs out. Sounds like to me its alot better deal for the owner that you. One of the great benefits of lease option is able to lock in the price now and hope for a larger payday down the road.

 

Doesn't sound like a motivated seller to me.

[belliott71 0]

That is one of the things I plan on telling her is that I want to lock in a price because otherwise she just has herself a lease for 2 years with a 10,000 non-refundable deposit. She is willing to do a payment plan so what I could do is see if she would take 420 dollars for 24 months. She is offering 200 dollars rent credit so that would work to my advantage if I could get someone in there without offering them rent credit. Her rent is $1450 per month so if I charge 1850 for rent, then the tenant is basically paying my option money. Now if I can get her to use my contracts and lock in a price with the above scenario, I think it could work.

 

Brad

[Doug Pretorius (ON) 9]

That's an awful lot of "ifs" and "maybes", Brad. Remember your an "investor" not a "gambler". It sounds to me like this seller is an investor herself and is looking for a T/B. In otherwords, there's no money in it for you.

 

If you went ahead with this "deal" you would be breaking every rule in the L/O handbook.

Rule #1: Don't put any money down.

Rule #2: Lock in a price below today's market value.

 

A $200/month credit is fine for a T/B but not for an investor. You should rather get a $1,250/month rent with no credit.

[MichaelC 160]

Brad, you've already received the same good advice I will give you. It appears you are dealing with an investor of some type, and not a typical homeowner who is motivated by a need for debt relief. That's who you will do your deals with. I suspect this owner senses you're new at this, and you are probably a motivated buyer right now. Dangerous combo.

$10K option money?! Not a chance! Not now, not spread out over time, not a chance! That's what you try to collect. You never pay it!

Leave the purchase price open? Tell the owner this is illegal. I'm not an attorney, but I was told by someone who is that leaving the purchase price out of the contract until the end of the agreement is referred to as an illusory contract, and renders the deal invalid.

Brad, I know you want a deal, but this one is a no-go in my opinion. You'll do better elsewhere.

[Rich_in_CT 0]

She can easily set the price at the end of the term artificially high, take your $10k and put it in her pocket, and do it again to another sucker. Run, don't walk.

[belliott71 0]

If this seller is an investor she is probably a newbie too. I first spoke with her on the phone and she gave me the details about the 10,000, the rent credits, and how I would forfeit them both if I did not buy. She told me about the price being determined 60 days prior to the end of the lease. I then emailed her saying that the deal was not feasible unless I locked in an option price. Here is her emailed response.

 

"Actually we are not offering an option, we are offering a rent-to-own, that is why the price isn't set up front to protect us in the event you decided not to purchase. I understand where you're coming from though and if you are interested in a rent-to-own, let me know."

 

I responded that it looked like an option to me because if I choose not to buy I loose the 10 grand.

 

Her response "Our house is no longer available. Thank you for your interest."

 

Oh well I gained good experience by making another phone call

[Adam King (MI) 1]

Brad,

If you straighten this lady out you could have a very easy CA on your hands. I would suggest to her that you could take an option on the property, produce $5K for her as long as you were able to keep the other $5K. This way you could find someone with $5K and create a promissory note for the rest and collect passively over time. Start at $5K and go down from there, but I wouldn't budge under $2,500.00.

 

I would also ask this is VERY SIMPLE TERMS as if you have done it a thousand times. Say here my deal; and then pitch it. All they can say is no.

 

She's not considering the fact that if the money is given over time it could be cashed out before then. The most important aspect of the lease purchase system is the mortgage. Sounds like she has not planned on that too heavily. Especially if it hasn't come up in the conversation.

 

Also, I believe they're new too because they did not identify you as an investor right off the bat. I can smell investors a mile away.

Regards,

Adam