Max0r 1 Report post Posted January 30, 2015 Hey guys, new to the forum, and I know how important first impressions are so I thought I'd start with a really stupid question so you all know I'm a true professional. Let's say I wanna lease option a house from a seller for $218,000 purchase price and $1,400/month rent, and then I plan on assigning that contract to a tenant-buyer with for a $10,000 assignment fee. Does the $10,000 get applied to the purchase price, leaving the tenant-buyer with a $208,000 purchase price if they exercise their option, or does the $10,000 not affect the amount they would pay at all? Would I be advertising the house as having a $218,000 price or a $228,000 price? Share this post Link to post Share on other sites
MichaelC 160 Report post Posted February 1, 2015 Hi, Max. Sorry for the delayed reply. I was out of town for a few days of R&R and shut off the machines. I'm assuming your question above is about a Cooperative Assignment. If so, then the option consideration that the tenant/buyer puts up is credited towards the purchase price. So if the homeowner was agreeing to a net price of $208K, then the advertised price to prospective tenant/buyers would need to factor in any option money that is being credited, along with any rent credits you are offering. Share this post Link to post Share on other sites
Max0r 1 Report post Posted February 1, 2015 What you shut off the machines? YOU CANT SHUT OFF THE MACHINES. Whoah, not sure where that came from. Anyway, hmm I wonder how that is worked. Let's do a slightly different example and say the owner's house is worth $238K tops retail. I'm a bit greedy and want a 5% assignment fee, but I don't know if I'll end up getting one, so what does a brotha do? Do I add 5% to the advertised price, coming out to ~$250k and if I don't end up getting the whole $11,900, I'll let the seller pocket the difference? And would that be pushing the price too high? By the way thank you for indulging me. I'm a slow learner. It took me 2 hours to work out the value of the house (I'm new to comping). Turned out me and the seller thought exactly the same on its value (pending photo verification of house updates). Share this post Link to post Share on other sites
MichaelC 160 Report post Posted February 1, 2015 The fine line we walk when we do these Cooperative Assignments is trying to satisfy the homeowner with an acceptable net price, while at the same time allowing us enough upside to add on the anticipated option consideration and rent credits. It's easy to get deals all day long if you promise unrealistic and greedy homeowners pie-in-the-sky numbers. The problem then becomes how do you move a property that is now well above market. You don't, and therein lies the common situation with new investors. In their zeal to get that first deal they make promises they can't keep, offering inflated figures to the homeowner so they agree to do the deal, but are then unable to find a t/b because the house is clearly overpriced.What does a brotha do, you ask? Due diligence and then make your offer based on sales data, and not on the homeowner's dream scenario. If you find your numbers and the homeowner's are far apart, blame yourself and ask the homeowner for a look at his. He won't have any because he pulled his numbers out of his. . .well, somewhere else than actual sales data. So now you face a decision: take a deal for the sake of having one, only to face rejection on the t/b side of things. Or, walk and find other sellers better grounded in reality and with at lease a semblance of motivation. In the meantime, the dreamy homeowner can fight the market on his own. . .and he may very well come back to you a few months, and mortgage payments, later. Share this post Link to post Share on other sites
Max0r 1 Report post Posted February 2, 2015 Hehe, I'm not surprised about this response. I noticed all the experts are very stern about making sure we don't do stupid things. I'm guessing you guys both have a lot of experience with this scenario with greedy sellers and newbies trying to pander to them. The only person who might be greedy in this scenario is me, and that's why I'm asking around. I might be greedy, but I am an intelligent man! (or so I like to think) The seller is realistic, and I told him that we might be able to get away with a little more price and rent, but ultimately we won't get anything done if prices are unrealistic, and he ain't trying to push for dream scenarios. Considering I checked all the recent solds and the for sales (competition) in a 1 mile radius, all of them in detail, and even google street viewed the house and the immediate area, I think my valuation is pretty accurate. Considering his valuation ended up matching mine, either he's a real sharp guy, or we're both idiots I also checked the local rental market for similar houses and I figured ~$1,400 market rent give or take, depending on how fancy the house is updated (or not updated). Owner said if he was going to be a landlord and take care of the pool, he would have charged $1,500. As far as I can tell the entire town or city has zero rent-to-owns, and the similar houses available for rent are almost non-existent, most of which are super expensive, like $1,800 to $2,200. One is only about $1,250 and seems comparable, but it's not rent-to-own. If I need to do a small 2.5% assignment fee and maybe even push the price down to do a deal, doesn't bother me, and I don't think it would bother the owner either. He doesn't give me the impression that he will argue with what the market tells us. He's free and clear so all the rent is profit minus the taxes. He literally can't be a landlord because he's got a lot of other stuff going on not related to real estate, and he's fine selling it quick or selling it slow (depending on when/if tenant-buyer/s exercise their option). What he's not fine with is continuing to bleed on taxes on a beautiful vacant house that turned out to be more than he could deal with. I also was under the impression that the house price for rent-to-own is ok to push up by 3-5% since tenant-buyers will be more concerned with the rental price and they will be not mind paying slightly above market for a hard to find opportunity in their area. But that's just my thoughts. Plus if the assignment fee pushes down what they're going to pay when they exercise, it might also look better. Assuming hypothetically my numbers are correct, in this situation what kind of number ranges would you say are realistic for getting a good amount of qualified potential tenant-buyers calling in to filter through? Share this post Link to post Share on other sites
MichaelC 160 Report post Posted February 2, 2015 Hehe, I'm not surprised about this response. I noticed all the experts are very stern about making sure we don't do stupid things. I'm guessing you guys both have a lot of experience with this scenario with greedy sellers and newbies trying to pander to them. Oh, yeah. In the rush to get a deal, it's all too common for a n00b to become the motivated buyer, agreeing to anything and everything. Of course, the end result being they are unable to find a t/b, and they now have a pissed off homeowner, and a lot of discouragement. Considering his valuation ended up matching mine, either he's a real sharp guy, or we're both idiots I also was under the impression that the house price for rent-to-own is ok to push up by 3-5% since tenant-buyers will be more concerned with the rental price and they will be not mind paying slightly above market for a hard to find opportunity in their area. Generally, this is true. But ultimately the market tells us if we're right or wrong. Assuming hypothetically my numbers are correct, in this situation what kind of number ranges would you say are realistic for getting a good amount of qualified potential tenant-buyers calling in to filter through? Do you mean the number of tenant/buyer prospects? Impossible to say, As always, getting the deal done is wholly dependent upon the effectiveness of your marketing and the accuracy of valuation. In other words, price it right, get the word out, the tenant/buyers will come a'knockin'. One more thing, Max. Real world expectations: option money will usually be in the 3% range. Share this post Link to post Share on other sites
Max0r 1 Report post Posted February 2, 2015 I look forward to seeing what happens with this. TBH even if I only walked away with $1,500 in my pocket that would be more than enough for my first deal, just because the stuff I could set up with that money would make handling the marketing/data much easier. Even with my database system I set up for free (took a few weeks to learn) there's only a limited amount of functionality I can get with that, and to really do some big numbers would take too much time micromanaging stuff. Plus I could also buy a pot to piss in Share this post Link to post Share on other sites
MichaelC 160 Report post Posted February 2, 2015 Save your money, skip the pot, and piss in a local cornfield. 1 Share this post Link to post Share on other sites
Max0r 1 Report post Posted February 3, 2015 I knew I could count on you for the best financial tips and techniques 1 Share this post Link to post Share on other sites
Max0r 1 Report post Posted February 3, 2015 I just thought of an idea. What if the house was offered for a higher purchase price, but with a 5+ year option period and lower rents? Might that be an attractive deal for someone who's credit is really shot to hell and will take longer to fix? Share this post Link to post Share on other sites
MichaelC 160 Report post Posted February 4, 2015 Yes, that's a possibility. The idea is to appeal to a t/b who is gambling that long term appreciation, in this case 5 years worth, will make the property a worthwhile deal when it comes time to exercise the purchase option. Share this post Link to post Share on other sites
