Questions Regarding Viability Of L/O
Hi, first let me say that I think the concept of L/O is a great one. I understand everything on paper but there a few questions that come to mind about it. Maybe you can point me to some different post that address these things already. In the past when it was harder to get a loan becase of negative credit I can see this idea working out great. Is it still as good of a program when almost anyone can now get a mortgage? I mean I hear of people with a 520 fico getting loansand actually it is easier to get a home loan than it is to get an apartment in the area that I live in. Second question. When you are doing a lease option., say the agreed upon price is 100K lease option for 6 years you turn aroun and lease it out with an option price of 120k in 4 years. Now I can see how the proerty will appreciate over the next few years so that the buyer will get some equity. What about the payments that they are making to you in the meantime? are those credited towards the purchase price? also are the payments that you are making to the origial seller gettin credited at al towards the agreed upon purchase price?
Thanks I appreciate comments and answers from the pros/
Joe
[addsig]
Joe,
You understand L/O pretty well. Let us review the characteristics,
Low/no down payment (or in this case option fee) so even a buyer who's got no cash can get in (whether his fica is any good or not).
Fixed price, so if you believe that prices are going up you can buy with L/O and hope that appreciation happens before your option expires (sorta like a forward call on a stock).
Sometimes you apply payments (in whole or in part) to purchase price (depends on the contract) so that these payments count as a downpayment when you get ready to exercise the option so the L/O has acted like a forced savings program.
Its easier to evict a tenant than to foreclose on a homeowner, so if you think the buyer may not follow through you're in a better than if you sold on land contract.
You get to operate the property during the lease period. So sometimes you L/O a building just to get the cashflow if you are convinced that there can be some.
Again, its the underlying economics that drive the method of purchase not the other way around.