Lease Option - Property Tax Issue
When you lease option, do you charge the principal monthly mortgage only, or do you include the property tax?
i am about to enter into my 1st lease option agreement with another investor. In fact it's my own house i'm selling through L/O. my monthly mortgage is $1,644 PLUS property tax of $435 = $2,079.
I wanted to rent it for $2,150 so i cld have at least a cashflow. But I find it hard to find tenants who cld afford bec. the rent range in that area is $1,500-1,600. But if i don't rent it incl. the prop. tax, i wld have negative cashflow.
What is the deal here?
Thaks for any guidance.
Lei
thaks for your replies and guidance.
i think it's a good idea to re-finance to lower my monthly but wld it be smart to do that even if i just started the payment this month of Sept.?
I originally wanted it sold traditionally but can't get buyers so i opted for RTO. I thought maybe it wld be better if i had it vendor-financed instead so i get a downpayment and get my equity upfront, since in this RTO i did not get any option deposit since the investor will cover the 1st month that it's vacant and other advertising costsi .. well my exit strategy just stinks i guess. bad decision for 1st investment.
leistar,
Let's get creative here!!
Go ahead with your lease option. Make sure that you get a very healthy deposit to cover some of the negative cash flow if necessary. But lets also look at how to eliminate your negative flow. 1) as previously said - refi to lower your monthly. refi costs may make this a bad option tho.
2) Since you are offering a L/O, it should not be compared apples to oranges with the common rentals of the area. They're getting a bonus towards their eventual mortgage application of consistent payments on the property they live in. Lenders really like this. For this you should be able to charge "some" money more than the going rent.
3) Give them a back end-bonus for a front-end payment. In other words, have them pay extra per month above the going rent for a credit towards their purchase price. Example Market Rent = $1500 but you need $1800 for your expenses. L/O for $1500 rent + $300 towards a purchase credit. This covers your costs and even further locks them in to purchasing the property by their option date. Of course you may want to increase the end purchase price to counter some of the credits.
This can be a Win-Win, just get creative with it!
Greg
Thanks Greg for yr reply. When i sat down w/ the investor, i actually told him about my concern of not having enough cash flow,. And he has the same concerns and his big challenge is to find tenant buyers who can afford $2,150 +month, so he's willing to lower it ($1,900) and he'll cover the deficit himself. It's more impt. for him to get someone move in soon, to cut our costs of having it vacant for the next months or so. He will just make up at back-end, when he'll raise the purchase price to cover his costs. Sounds fair isn't it? So i guess we'll leave it at that.. and i turned over the property to him. He's good guy and we plan to work together for other deals eventually.