Is There A Percentage That One Should Be Trying To Get When...
doing a straight option? I hope my question makes since. For example, if i have a house that can go for 100k, what should i option try to get the seller to accept. Then, what should i try to get my buyer to pay?
Murphy
You adjust as to the individual with whom you are dealing. I have on occasion let someone have an option with a very small amount down, but then the price was high and this was an individual with the worlds worst credit. He could only buy on a subject too deal and I was his Savoir. It was with difficulty I restrained him from starting a new church with me in the star role.
You read the person and act accordingly. This particular individual bought the house and are you ready? Paid all cash. It took him two years to recover from his ex wifes super foolishness and to settle down and produce a line of better dresses that blew the market away.
On the other hand I have had a rather substantial downpayment in exchange for a small rental amount. I actualy subsidized part of the small rental monthly payment in expectation of a future sale. But it did not occur and I ended up refunding a portion of his downpayment as I did not feel like spending the next two years fighting a lawsuit from which there would be no recovery.
Cheers Lucius
When buying on a L/O you want spend as little cash as the seller will take for the option. The less you put into the option the more you have for repairs, reserves, etc. At least that is what you say to the seller so they understand that you recognize that it takes a little cash to maintain the place.
When selling on an L/O you want enough that they feel the pain if they walk. Depending on the market 3%-10% might be acceptable. Certainly try to get as much or more then you paid if you bought the place on an L/O.
John
[addsig]
I am, right now, selling a 2 year option to purchase a building I own. Last spring I had offers at $1.3 million. The option is at $2.0 million. I am charging a $25,000 option fee.
The purchaser asked me how much more I would want for a three year option and I told him I would want as much for year three as I did for the first two years, an additional $25,000.
Allow me to review the thought process that got me to those numbers. I don't really want to sell. I like this building, it pays its bills. I had already decided I'd take $1.5 million since that is more than I thought it was worth but not a penny less. So two years at $2.0 million doesn't cost me a lot because the odds of me wanting to sell sooner than that are pretty small. So I can take an option fee equal to one point on the option price or two points on the market value because I have not precluded any other choices in the meantime. On the other hand my position for year three is different. Within 3 years the property might appreciate enough that it would be worth more than $2.0 million. In which case I'd rather own it than have somebody else have the option to buy.
Meanwhile my potential purchaser can take the option and go try to get a zoning change. If he succeeds then $2 million will be a pretty fair price (though still not stupendous) I will put over a million in my pocket and be a very happy man.
Now that building cash flows as it is now. So it costs me nothing to carry it. If I were in a situation where I was selling an option on vacant land, for example, I'd like the option fee to equal my cost to carry the land.
Anyway, as Lucius said more succently, it depends on the option price and the length of the option.