? Sandwich L/O Buyer Purchase Price

[rj8654 0]

Hi Everyone,

 

Me again. New to this and learning. My wife actually asked me this question when I mentioned we should L/O our house that we currently live in. The question is:

 

If we get someone in to L/O our home for say a year or two and when they go to get a mortgage the lender does an appraisal. What happens if the appraisal comes in less than what we are selling it to the tenant buyer for? For example: When the TB is ready to purchase the home they owe us $200k but the mortgage company appraises it at a lower amt because prices may have dropped. What happens?

 

I didn't know how to answer that. Could someone please explain how that could be handled?

 

Oh and if my contract states to allow 60 days before I make my first payment to the seller,to allow me time to get my TB I've read if i get them in 30 days I will receive one month of the rent without having to pay the seller. How can that be if the seller is in the home? I can't imagine the seller moving out and still paying for 2 months before I make a payment. Especially if the tenant buyer moves in before the 60 days are up. Any feedback?

 

I appreciate the feedback (as does my wife lol)

 

Thanks,

Rich

[MichaelC 160]

Hello, Rich. Let me take a shot at this. . .

 

If we get someone in to L/O our home for say a year or two and when they go to get a mortgage the lender does an appraisal. What happens if the appraisal comes in less than what we are selling it to the tenant buyer for? For example: When the TB is ready to purchase the home they owe us $200k but the mortgage company appraises it at a lower amt because prices may have dropped. What happens?

First, your agreement between you and your t/b should contain a financing disclaimer, stating that the availability of obtaining a mortgage is not guaranteed and not a condition of performance.

Now, should the appraisal come in lower than the option price, (not unusual these days), you have several options at your disposal. For example, you can lower the price to meet the appraisal. Or, you can offer seller financing to make up the difference between what the purchase price and the appraisal price.

Or, cooler heads prevail and both parties reach an agreement somewhere in the middle. It depends upon your motivation to get the deal done. Do you want to lose the sale because, from a purely legal standpoint you have a valid argument to hold out for the higher price, or do you want to get the deal done?

 

Oh and if my contract states to allow 60 days before I make my first payment to the seller,to allow me time to get my TB I've read if i get them in 30 days I will receive one month of the rent without having to pay the seller. How can that be if the seller is in the home? I can't imagine the seller moving out and still paying for 2 months before I make a payment. Especially if the tenant buyer moves in before the 60 days are up. Any feedback?

Well, if the homeowner is still in the property, the t/b can't move in early and you'll have to adhere to the original lease date. On the other hand, if the property is vacant and you find a t/b who wants possession immediately, you may have the opportunity to pocket some unexpected cash. But keep in mind in so doing you are squatting on the premises if you move in before the lease start date. I suggest you opt for doing the right thing and notify the homeowner of the t/b's wishes and go from there.

 

Tell your wife I said, "You're welcome".

[rj8654 0]

Thanks so much, Michael. I was at a loss for words when my wife asked. Those questions.

 

Tell your wife I said, "You're welcome".

 

Seriously. Thank you. She kind of thinks it's a hairbrained idea to get involved with real estate investing to begin with. But with our house ... lets just say it was pretty loud when she was speaking to me I will have to relay the information to her and see if it makes her feel more confident about it. I try to be understanding.

 

I would definately do what was best for the person buying as long as it didn't put my families well being in the hole. I definately don't want to be a "bad" investor. Fair for everyone. From everything I've read that you wrote on your site, you seem like a great investor to aspire to be like :-)

 

Wish me luck.

Rich