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Okay, heres the deal. I have been working with a tenant/buyer who has his eyes on a condo for him and his son. Father is in the midst of a divorce and needs to find a home for him and his teenaged son.

 

I have a seller I got through the For Rent By Owner on the internet. I called the owner, shared the story about our father/son situation and asked if he would consider selling the condo. I told him the dad, a lawyer, was adamant that he live in the same community where his son attends high school, and that he (dad) did not want to make a landlord rich with $1200/mo. rent. He will buy instead.

 

There was a moment of silence as the homeowner thought about the situation and said, lets talk about it. The home owner agreed to sell the 2 bedroom 1 bath condo for $252,500.00. After running comps on the condos sold in his complex, his asking price was fair. He has a mortgage with PITI of $1000.00. Current tenant is paying $1300.00 per month. Current tenant will be leaving at end of April.

 

I will set the buy price for the tenant.buyer @ 4% above the FMV which will be $265,600 in 2 years, with a $10,000 option consideration. The rent will remain at $1,300.00 per month.

 

I know that the $10K is a non refundable fee that is credited to the purchase price or down payment. I am unclear as to how the $10K is credited to the T/B. What form do I complete that addresses this? Who gets copies of the form(s)? How is the $10K recorded so that at the end of 2 years, the money is credited to the T/B. Is the $10K held in escrow or in my bank account? Please tell me my bank account is the happy holder of this money. Is the money eventually. If the seller wants some of the option money how and when is that distributed?

 

I ask these questions so I can answer the seller and buyer about the option consideration from a position of integrity and professionalism. Walking me through this is greatly appreciated. I think there are some steps that may have been left out through my ignorance. Please fill in the gaps.

 

With respect,

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I know that the $10K is a non refundable fee that is credited to the purchase price or down payment. I am unclear as to how the $10K is credited to the T/B. What form do I complete that addresses this? Who gets copies of the form(s)? How is the $10K recorded so that at the end of 2 years, the money is credited to the T/B. Is the $10K held in escrow or in my bank account? Please tell me my bank account is the happy holder of this money. Is the money eventually. If the seller wants some of the option money how and when is that distributed?

 

Charles, there are three docs required for completing a Cooperative Assignment: the CA Residential Lease Agreement, the Option to Purchase Agreement, and the CA Assignment Agreement. Together, they make for an easy to follow paper trail so when the time to purchase arrives, it is clear who paid what, how much, when, etc. You need three sets of these docs: one for the homeowner, one for the t/b, and one set for yourself.

Whatever option consideration is paid is nonrefundable, of course, and so there is no need for that money to be placed in escrow. It's yours. If you agree to share some of this with the homeowner, do so grudgingly. At best, you keep it all. At worst, you do a 50/50 split. Reality is you will probably need to give him an amount equal to one month's rent.

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That's clear! Thank you.

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Hey Charles!

 

I'm glad to see that you came to this forum to get your questions about lease options answered ... The guys here know their stuff and you can rely on what they tell ya ...

 

I saw the response to this same query on, as John Jackson calls it, "a less friendly forum." You can follow that advice IF you want to run the risk of the transaction being treated as an installment sale by the IRS and the courts if you ever appeared before a judge. Just sayin' :)

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Hey! A bwalston sighting!

Charles, our docs consist of a Landlords Acknowledgements, Lease, Option to Purchase (OTP), Assignment, Assignee's Acknowledgements, and in TX 2 other docs.

The Landlord's Acknowledgements has a number of items in there, and includes a spot where I reflect what portion of the option fee the owner is getting.

As MC mentioned, the OTP shows the Option fee in there, as does the Assignment.

On our docs, the Assignee's Ack. also reflects it.

When we take someone to finance, the underwriter gets the loan package from Rachel, and this includes the OTP and Assignment, and obviously the 1003 and support docs etc.

The HUD-1 reflects the option fee and it is applied to the lender's required downpayment.

That's how we do it anyway.

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Thank you to each and every person who contributed to mentoring me through this. MichaelC you have some amazing contributors, guru's in their own right. Thanks again!

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Hey! A bwalston sighting!

Charles, our docs consist of a Landlords Acknowledgements, Lease, Option to Purchase (OTP), Assignment, Assignee's Acknowledgements, and in TX 2 other docs.

The Landlord's Acknowledgements has a number of items in there, and includes a spot where I reflect what portion of the option fee the owner is getting.

As MC mentioned, the OTP shows the Option fee in there, as does the Assignment.

On our docs, the Assignee's Ack. also reflects it.

When we take someone to finance, the underwriter gets the loan package from Rachel, and this includes the OTP and Assignment, and obviously the 1003 and support docs etc.

The HUD-1 reflects the option fee and it is applied to the lender's required downpayment.

That's how we do it anyway.

What do you have on the Landlord & Assignee's Acknowledgements? Got any samples you can share?

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