House in the Boondocks

[ErikOk 10]

She's worried I might not have enough buyers in that rural area. No way to know if you're not allowed to proceed.

 

and what if they find their own buyer or decide to rent after a couple months. It shouldn't take 2 months to L/O a property. How long did it take her to find those other people?

 

May be best to send one of the short form (letter of intent) and let them call you when they decide to "poop or get off the pot"

 

[MichaelC 160]

For a midwest rube, Erik is making a lot of sense.

If they are open to a lease purchase and the numbers make sense, get a Short Offer Letter in her hands soon. But I would definitely include a 24 hour expiration date with that offer. If they're serious that shouldn't be a problem. I'm not much for foreplay. . .I just want to get it over with.

[ErikOk 10]

For a midwest rube, Erik is making a lot of sense.

If they are open to a lease purchase and the numbers make sense, get a Short Offer Letter in her hands soon. But I would definitely include a 24 hour expiration date with that offer. If they're serious that shouldn't be a problem. I'm not much for foreplay. . .I just want to get it over with.

I sense John Jackson will be making an appearance soon

[MichaelC 160]

For a midwest rube, Erik is making a lot of sense.

If they are open to a lease purchase and the numbers make sense, get a Short Offer Letter in her hands soon. But I would definitely include a 24 hour expiration date with that offer. If they're serious that shouldn't be a problem. I'm not much for foreplay. . .I just want to get it over with.

I sense John Jackson will be making an appearance soon

Mention foreplay and he's a-runnin' to his laptop as we type.

[DeeLight 8]

hmmm, what was it we were discussing??

 

So the latest update is they want the short form letter; I will fax it to the woman I've been speaking with and email it to the son who lives 30 min away.

 

OK so when they sign the short form then I send the lease doc and the option doc to the attny "friend". Right?

 

Their asking (and former list) price is $149k. I asked her what was the least she would want to sell for. She said if it was any lower than $145 they would just rent it out and wait for the mkt to change. So I would add my option consideration on top of that----say, 2k for me and maybe 1k for the agent I will have put up flyers and signs. Does this sound right? Or should I pad it a bit more just in case?

 

What kind of doc would I have the agent sign?

 

Whew, looks simple at 1st glance but there are a lot of steps!! I'm a nervous wreck!

 

Thanks guys for such great input.

[ErikOk 10]

hmmm, what was it we were discussing??

 

So the latest update is they want the short form letter; I will fax it to the woman I've been speaking with and email it to the son who lives 30 min away.

 

OK so when they sign the short form then I send the lease doc and the option doc to the attny "friend". Right?

 

Their asking (and former list) price is $149k. I asked her what was the least she would want to sell for. She said if it was any lower than $145 they would just rent it out and wait for the mkt to change. So I would add my option consideration on top of that----say, 2k for me and maybe 1k for the agent I will have put up flyers and signs. Does this sound right? Or should I pad it a bit more just in case?

 

What kind of doc would I have the agent sign?

 

Whew, looks simple at 1st glance but there are a lot of steps!! I'm a nervous wreck!

 

Thanks guys for such great input.

 

Is the price she is asking realistic? Have you done any comps? What price did she buy it for, and what is owed on the property? Does the agent you're working with seem to thing the price is in-the-ballpark?

[DeeLight 8]

Yes, Erik, the price seeeems realistic. Comps are scare because it's a rural area but they are in line with the asking price if figuring $persf.

 

Agent said price is in ballpark and house has nice extras. I don't know what she bought it for and how much she owes. I only know that she is firm about the $145k price.

 

I have seen Michael post a few times that the market will show us what it will pay. These folks will continue to market it themselves (I'll document all viewers of the prop) and we'll see if it sells.

 

Erik, do you get these rural type props out where you are or do you deal only in-city?

 

I'm not going to force this (that's only trouble) but all I need is 1-2 of these to be able to quit the day job and go full time. My ace in the hole (maybe) is that the son, who is the official owner, does NOT want to rent the house anymore. His mama is conceding to his wishes but says it's a great cash-flowing prop. He wants it sold. This may be worth the effort if I don't screw up the paperwork!!

 

Time will tell.

[MichaelC 160]

OK so when they sign the short form then I send the lease doc and the option doc to the attny "friend". Right?

First, assuming they agree to and sign the Short Offer Letter, then the next step is to get the CA Residential Lease Agreement, and the separate Option to Purchase Agreement signed.

I would try and avoid having their attorney involved, if you can. They are known as "deal killers" for a reason.

Instead, send the docs direct to the homeowner and suggest they review it with you over the phone. This will give you the opportunity to highlight for them the strength of a good agreement for them. You'll also be saving them money by avoiding Larry the lawyer.

As for the numbers, if the plan is for the homeowners to receive $145K net at closing, then you need to add to that any rent credits you are offering and the option money you anticipate receiving and keeping. For example, if the rent credits totaled $5K and you were expecting $5K option money, then the gross price you would be marketing the property for would nave to be $155K. The question we always have to ask ourselves is whether or not that is a market friendly figure.

Speaking of option money, did you discuss with the owners anything about this? Are they receiving a cut? You should be expecting between $4K - $5K in this price range.

[DeeLight 8]

OK so when they sign the short form then I send the lease doc and the option doc to the attny "friend". Right?

First, assuming they agree to and sign the Short Offer Letter, then the next step is to get the CA Residential Lease Agreement, and the separate Option to Purchase Agreement signed. Ok good to know; thanks for the guidance.

I would try and avoid having their attorney involved, if you can. They are known as "deal killers" for a reason.

Instead, send the docs direct to the homeowner and suggest they review it with you over the phone. Holy cow that scares the holy beejeebies out of me---contracts and forms!!! I guess I'll have to master this phobia quick. This will give you the opportunity to highlight for them the strength of a good agreement for them. You'll also be saving them money by avoiding Larry the lawyer.

As for the numbers, if the plan is for the homeowners to receive $145K net at closing, then you need to add to that any rent credits How do I configure what rent credits we are allowing the t/b? you are offering and the option money you anticipate receiving and keeping. For example, if the rent credits totaled $5K and you were expecting $5K option money, then the gross price you would be marketing the property for would nave to be $155K. I guess I'll just have to see if the market will bear this. She did say that her son's house on the same street and not as nice appraise 2 years ago for $159k. I don't know if that's a useful piece of info ?? The question we always have to ask ourselves is whether or not that is a market friendly figure.

Speaking of option money, did you discuss with the owners anything about this? Not yet---I'm sure she's going to bring it up. Are they receiving a cut? I will probably allow a one month rent to them out of the option money. You should be expecting between $4K - $5K in this price range.

 

One more thing Michael. If I was to act as a consultant in this rather than than a conducting a CA how would that change what I am doing in this deal. Thank you

[MichaelC 160]

First, you'll note that I recommend you cut out the attorney and send the agreements direct to the homeowner. . .something I have always cautioned against. Mailing agreements direct to a homeowner can sometimes result in being cut out of the deal by a homeowner with less than honorable intentions. There are times, however, when you may not have any other choice. This may be one of those times. At the very least be certain the agreements are filled out so if they do want to scam you they will have to go through the the trouble of rewriting the docs manually.

Bottom line: what does your gut tell you about these folks? Trustworthy or not?

 

As for rent credits, I almost always start with 50%. I want the phone to ring and the emails to come in. The determining factor will be whether or not you have enough of a spread between the net price to the seller and the retail price you will be advertising the property for.

 

If you want to approach this as a consultant, you reach an agreed to price for your services, complete the Consulting Agreement, and are paid in advance.

[DeeLight 8]

I am going to send the docs to the sellers and let the chips fall where they may.

 

I am sorry to ask a question that seems so elementary but I don't fully understand the rent credit set up.

 

Is it like this:

 

The t/b's will be paying $1200 for lease:

50% of that would be considered purchase ----is the word concessions? (rent credits). So if they exercise their option in 12 mo then they would have $7200 toward the down payment of the house. Yes?

 

Hope this helps other newbies lurking here too

[MichaelC 160]

I am sorry to ask a question that seems so elementary but I don't fully understand the rent credit set up.

 

Is it like this:

 

The t/b's will be paying $1200 for lease:

50% of that would be considered purchase ----is the word concessions? (rent credits). So if they exercise their option in 12 mo then they would have $7200 toward the down payment of the house. Yes?

No! Rent credits are not a part of anyone's down payment. They are a credit towards the purchase price. Meaning, if the purchase price of the house is $200K, and the rent credits total $7K, the purchase price is amended or reduced by that amount. The new purchase price would then be $193K.

[DeeLight 8]

Ok!! Got IT! I always get those mixed up Thanks as always!

[MikeT/NC 5]

Deelight, Here's what my Mort. B told me to do. Keep it simple. She said when her underwriters saw "rent Credits" they would go into a tizzy. Have your T/b write the oc check to the attorney as trustee. That way they could see that the money has actually changed hands. Then instead of monthly rent credits just offer X amount if they can exercise within the time period. Makes no difference if they can exercise in one month or one year. This money would be considered a seller concession. And be used to pay closing cost. Not reduce the sale price. (as I understand it). Jonathan Rexford had a post on here somewhere talking about just this same thing. He even posted the wording he's using in place of the rent credit wording. I couldn't find it but MC might remember the post.

[DeeLight 8]

Thanks Mike. In my state I won't be having to use an attny. Sooo, the check would be written and turned in with the escrow instructions----yes? Is the check made out to me? I thought that's what I had read.

 

I will be talking with the sellers this morning; they got the short form letter yesterday; we haven't discussed everything after that. I think they are going to come back and say "Why is the sell price $144k when the comps point to $150ish?" So at that point I would explain that the rent credits are added onto the sale price---is this correct?

 

When we get to the discussion of the option money if they squawk I'll let them have one month's rent $1200 out of the $4k.

 

I already told her about the for sale comps and realtor fees and closing costs etc and that the seller walked away with way less than the sales price we can see.

 

I'm not attached to getting this deal; it's been good learning as I go. I would appreciate any coaching you have for me!

 

You all are the best. I'm sticking around in this forum even after I get comfortable with all the deals so that I can help others the way you help me.