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Monthly Payments

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I am offering sellers monthly payments based on their asking price, current interest rates of about 7%, taxes and insurance amortized over 30 years. The sellers always seem to balk at the low monthly payment. Do they just still have the mind-set that they are going to profit? Surely, if they want to profit monthly it should be done as a CA. Let them manage the deal through close if they want to put money in their pocket. Am I getting this right? DUH!!! How do you guys and gals determine monthly payments? I am a real estate agent with access to the MLS. I determine value based on a CMA not some opinion or guess. I want to use a formula to determine monthly payments. I like static numbers. Take it or leave it. I am not interested in negotiating price or terms with sellers. Am I a pompous a**? ;)

 

Agent Dino

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Am I a pompous a**?
Yup! LOL just kidding ;)

 

I can't stand negotiating either and fortunately it's not necessary. But you have to come at it from the other side. Let the seller tell you how much they want in price and rent, and then decide if that works for you or not. If it's low enough pursue a SLO, if it's higher do a CA, and if it's too high just turn them down.

 

I found that when I made offers based on a certain interest rate two things happened:

1) Lots of sellers scoffed at my offer, just like they're doing with yours.

2) I massively overpaid for many homes!

 

I'm continually shocked by how low sellers go when they name the numbers, especially the rent. Of course there are also many you have to turn down because they want way too much. But you'll be surprised how many will offer you great terms.

 

I like I ask the question like this, as it often gets down to their bottom line:

"How much would you need for rent?"

 

Don't emphasize the word "need", just use it instead of "want". The response is often: "Well, I would need $$$ to cover my payments."

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Dino, unlike sales prices, rental prices are not a part of the public record so it isn't as easily determined. I do know that many homeowners assume if their payment is $2,500/mo then the rent is, too. Of course, it ain't so and breaking that news to them is a must. The going rent is market driven, not mortgage payment driven. I look for other similar rentals in the neighborhood that are in the paper. Or I'll call a property management company of a rental agent at one of the real estate offices and ask their opinion. If it turns out it's $500 or $1K below the homeowner's monthly payment, so be it. I tell 'em the bad news and they have a decision to make. Take a negative each month, or sit on their property for six months waiting for it to sell, all the while making that full monthly payment themselves.

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If the agreed upon price is $300,000 and the seller's mortgage payment/holding costs are $1,200 per month (example only), why would I pay them a dime more no matter what the rental rates are? If they want rental rates then they shouldn't sell the property and find tenants or do a CA, of course. If the seller is motivated and doesn't want to manage TBs and collect rent or anything else, they shouldn't expect a monthly profit. I am not a property management company. What am I missing?

 

Agent Dino

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If you're talking about a sandwich lease, you're correct. You want to drive the hardest bargain you can. But that doesn't always mean only paying an amoutn equal to the homeowner's payment. If their payment is substantially below the market rent I would have no problem giving them some more. Depends upon the big picture and all of the numbers involved.

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Yes, I am talking about a sandwich lease. I know everyone's business style is different. My logo is a shaking fist with the words - I hate sellers. ;) Why have I been in this business for 20 years? :wub: I don't want to give sellers more than their monthly payment. Why should I? They should be paying me, but of course, they are not. :angry: If I calculate a payment and they end up with more than their monthly payment...good for them. I'm having a difficult time understanding why rental rates are relevant calculations on the seller's side in a sandwich lease. I am not a renter. I am not a property mangement company. Why would I consider rental rates when I'm lease purchasing from the seller? If they want rental rates they should find a renter or do a CA. No? Is anyone ever going to do business with me? :lol:

 

Agent Dino

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Why would I consider rental rates when I'm lease purchasing from the seller? If they want rental rates they should find a renter or do a CA. No?
No. The monthly payment is a part of the terms that require agreement, Dino. Just like the purchase price and the length of the lease. Don't take a hard line and insist on "winning". If I pay a homeowner $200 more per month than their payment, and I can still go out and receive $200 more from a t/b, what's the harm? Everyone's happy. Reminds me of the old expression on Wall Street: Bulls make money, bears make money, but pigs always lose. In other words, don't be greedy. There's usually room enough for all in the deal.
Is anyone ever going to do business with me?
Sure. If you take my advice. ;)

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I am not interested in negotiating price or terms with sellers.

Huh. So how did you figure real estate would be a good career choice for you? ;)

 

My logo is a fist shaking with the words - I hate sellers. Is anyone ever going to do business with me?

I know you don't literally have a logo like that, but would you expect people to rush to do business with someone who clearly despises them? That kind of thing comes across loud and clear.

 

I don't want to give sellers more than their monthly payment. Why should I?

Let's say I own a property free and clear. In order for us to do business, you would offer me zero per month? And on top of that, you would propose that I pay you?

 

Fair Market Rent is a major component in a rent-to-own transaction. It may be in everyone's interest to agree to be over or under, but you can't ignore it and expect to prosper.

 

Dan

Freedom Creek LLC

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As far as getting market rents, I always browse the craigslist for apts/homes for rent in a certain area to gauge how much people are asking to rent a 2bedrm, 3bedrm, etc. and then subtract maybe a $100 or so from the proposed average rent to get to Market Rent. If anybody has any feedback let me know.

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