Jump to content
The forums have been archived and are now read only. Years of great info saved for your reading pleasure. Thank you! Visit us on Facebook: https://www.facebook.com/NakedInvestor/ ×
The Naked Investor Forums

Recommended Posts

I am working on my first deal:) I have a owner that contacted me to sell her home ( I am a licensed FL realtor).

I want to give her other options such as a LO. We had the home appraised and it is $143,000. She paid $160,000 and owes $119,000. Her Monthly payments including escrow$1020.00

Market rent is $1100.

Home is vacant-she lives out of town. But she is not desperate. Said she wants to sell by Jan when she moves out of state. She just spent $10,000 doing rehab-so she told me.

 

I need help in structuring this, I am not sure if I want to sandwich or just get out and assign since this is my first deal and I am nervous. Can you give me some examples on what I should offer her and how do do this deal ?

 

Shelley

 

Share this post


Link to post
Share on other sites

Hi, Shelly. Just so I'm sure, you aren't looking at this as an Agent but as an investor, correct?

In my opinion the numbers are a bit thin to do a sandwich lease. Almost zero monthly cash flow and minimal equity. That, combined with this being your first deal suggests you should approach this as a cooperative assignment.

With a $143K appraisal do you think you could make the argument to prospective tenant/buyers for a $149K option price on a 12 month deal? If need be, go with 24 months. Most tenant/buyers are always looking for the luxury and value of more time in exchange for paying a slightly above market price. The market rent of $1,100 will cover the homeowner's PITI, so that should keep her pleased.

Your piece of this deal will come in the form of the option money you collect and keep. Figure about 3%, or between $4K-$5K. Try and keep it all but the reality is the homeowner will want some. Now, your negotiating skills come into play. If she asks for a piece, and only if she asks, offer her an amount equal to one half of one month's rent, emphasizing it is a nonrefundable payment, not to be confused with a refundable damage deposit. It might fly. From there, you may need to go higher but do so grudgingly. Remember, it's your money for having the know how and the paperwork to put the deal together.

Share this post


Link to post
Share on other sites

Michael ,

Thanks for the quick response. I want to make sure I am on the right track with my thinking.....

Does tenant/buyer pay a option fee PLUS security deposit?

 

 

I will tell the owner I will get him a Tenant/Buyer within say 90 days. Sales price will be $149K and my fee is $5K.

Tenant will pay $1100 rent for 12-24 months. PROS= Seller will get more money doing this than a traditional sale as he will

not pay sales commission of 6%, no closing cost. Seller will also get more money due to receiving $ 144K and in a traditional sale the price is negotiated down.

 

I will get a tenant/buyer who will purchase the home for $149K within 12-24 months, pay $5K option fee and pay general maintenance and all closing cost.

 

Michael- do you use lease option or lease purchase?

I am wondering on the tenant/buyer side if they will pay lets say $1250 rent ( a little higher than market since they have a option) and maybe

$100 goes toward the purchase at the end? Do you do rent credit with your deals? I was not sure if tenant/buyers expect that?

 

Do you set your tenant/buyers up with credit repair? I would not think it is realistic for the tenant /buyer to be able to purchase within 12 months. I was thinking more of 24+.

 

Thanks again,

Shelley

Share this post


Link to post
Share on other sites
Does tenant/buyer pay a option fee PLUS security deposit?

 

Every deal is different, of course. But typically the t/b pays the option consideration plus the first month's rent prior to taking possession.

 

Michael- do you use lease option or lease purchase?

I am wondering on the tenant/buyer side if they will pay lets say $1250 rent ( a little higher than market since they have a option) and maybe

$100 goes toward the purchase at the end? Do you do rent credit with your deals? I was not sure if tenant/buyers expect that?

 

I use those terms interchangeably. I know the legal gurus among us will make a distinction between lease option and lease purchase. But in the real world, a lease purchase does not guarantee a purchase. I understand the homeowner can file a suit if the t/b doesn't follow through and buy the property with said lease purchase. But, then what? The guy lost his job or got a divorce. How are you going to force him to buy a house he can't even get a mortgage on? It's all semantics.

Yes, I always include a generous rent credit, usually in the 50% range. Tenant/buyers respond to an ad with that headline, believe me. Build it into the price as best you can. Of course, there are times when the numbers don't allow such generosity. But always offer the fattest rent credit you can . Your objective is to find a t/b and move the property ASAP.

Share this post


Link to post
Share on other sites

I usually answer questions on Dodd-Frank and lease options as follows: It is too soon to tell because the law is so new and there have been no federal precedents applied as of yet.

In my humble opinion, Dodd-Frank is law that apples to the sale and finance of properties. A lease option is NOT A SALE or a transfer of title but a contract for the opportunity to purchase for a pre-negotiated time frame and terms. It is not an obligation to purchase as is a sales agreement. Rent credit only applies if the option is exercised, so therefore it is a pre-purchase discount to the contracted purchase price and not part of the final sales finance, etc. Of course, the agreements we use must be designed to reflect this.

There is a wealth of misinformation out there right now from guru's with no legal background and who have NOT read the law or are misinterpreting it. I would not worry about Dodd-Frank and I also would take a wait and see approach on forthcoming federal decisions.

Share this post


Link to post
Share on other sites

Michael ,

This is what I came up with to present to the seller. I want to give her options sell vs LO. My question is do the tenant/buyer pay all the closing cost? Even if they do not , the seller still comes out ahead unless I made an error. Am I missing anything in my presentation or good to go?

 

COST TO SELL HOME

(estimated/average)

 

$143,000 List Price

 

 

6% commission $8589.00

2% closing cost $2860.00

6% sellers concessions $8580.00

3% holding cost $4290.00 (date put offer in to end of escrow)

17% $20,510 cost to sell

 

 

$143,000 list price

-119,000 debt

- 20,510.00 cost

$3490 owner net

 

---------------------------

 

Rent w/ Manager

$1100 average rent in neighborhood

10% mgmt. fee $110.00

maintenance $1000. (yearly )

--------------------------------

Sell On Lease Option ( our fee paid by tenant/buyer)- close 24 months

$143,000 owner

$1300.00 rent

 

give the tenant 50% rent credit = $15,600 rent credit

 

$143,000 sale price

-15,600 rent credit

+ 4800.00 rent profit ( $200x 24) owner owes approx. $1100 a month

----------

$132,200.00

-119.000.00

 

$ 12,030.00 owner net

 

I sell to tenant /buyer for $149,000

Net to me $5000.00

 

 

Shelley

Share this post


Link to post
Share on other sites

Does the t/b pay all closing costs? Probably not all, because certain closing costs must be paid by the seller, depending upon local and state laws and the type of mortgage the buyer is using. So my contract will state that the purchaser will pay all allowable closing costs, which is usually the majority.

Your numbers make the case that a lease option can be more profitable for the homeowner if they are willing to wait to cash out. Also, and you know this deal best, it might be possible to nudge up the option price a bit to the top of the market range. Remember, there is value in time and if you are offering a year or more, most tenant/buyers will be willing to pay that slight premium. So for example, instead of $143K it might be possible to go with $148K. Again, I'll defer to you on this. But just a thought.

Share this post


Link to post
Share on other sites

I was going with the seller gets the $!43 and I assign to the TB for $148. Thus me making $5K

Are you saying for the seller to get $ 148K and me to add my fee to that?

Share this post


Link to post
Share on other sites

No. You don't want to price the property out of the market. So it's a $148K gross purchase price to the t/b, from which you receive $5K.

Share this post


Link to post
Share on other sites

×
×
  • Create New...