What Is Important For Setting The Option Terms
I have two houses that I want to L/O. I have done L/O before, but always struggle with the terms: upfront non-refundable option money, monthly rent, rent credit amount, and purchase price. What factors go into deciding these numbers? Is FMV, area of town, prevailing rents, etc.
My two houses
1) 2/1 with bonus room that could be third bedroom. 800hsf. one car detached garage. built 1950. good condition but it is older in a lower income, but safe, area. FMV 85k.
2) 3/1.5 with bonus room that could be fourth bedroom. 1350hsf. one car detached garage. built 1960. good condition but it is older in a lower income, but safe, area. FMV 100k.
As I look through my description I wonder what is really relavent to set the terms of the L/O. My underlying mortgage payments are low and I do want to sell them within 12-18 months.
Brenda
Anybody?
If you are serious about getting the properties sold, make sure you get no less than 5 percent down. I would raise fair market rents by 20 percent (they will have to be able to afford the mortgage payment in 12 months anyway). With a 500 credit score, they can usually borrow 90 percent (if treated as a refi). With 580, they can borrow 95 percent. With 600, they can get 100 percent. Sometimes, closing costs can be rolled into the loan. Chances are the T/B will have to come out-of-pocket at closing (unless you take back a 2nd to make it work, in which case I would make it no interest/no payments, witha five year balloon--if they re-sell, you get paid, and if not, they have to refi to cash out the balloon).
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If your goal is to get cashed out, the upfront consideration money is important, b/c our experience has shown that the more money they put down, the more likely that they will exercise the option to buy the house.
What jmikell said! AND the less likely they will be to cause problems.
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Hi,
Thank you both so much for your time, and expert advice!
I will take the advice and read Subject to forum.
Again.... Thanks!
Just one more question.
Being a novice at this, seems like I could really mess up. Always something more that is needed to be known,that a first time person would miss.
Is this possible: I find a FSBO, then get an investor to do the transaction, then I lease option from the investor. Okay, agreed, the investor will make the money, but I am paying rent towards the purchase, rebuilding my credit.
Then... if above works...... how do I find the investor, and what terms should I look for. I have been reading the forums, and it seems like the transactions should be left to the experts. I want to repair my credit, not get into more problems.
Any input is much appreciated.
Thank you again.
In My Humble Opinion
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Quote:
On 2006-05-04 09:20, house2house wrote:
Also, do you suggest, before signing any Lease/Option to have a Real Estate Attonrey look at the contract? If so, how do you find a Real Estate Attorney you can trust?
This is probably the biggest investment you will ever make - I think paying an attorney to review it is cheap insurance. As to finding a good one - ask friends/relatives for a referral.
Legrand Jr,
I think it is a good idea. I have been toying with the same idea but to make it more enticing give them full price on the LO also (or discount it only by the commission you were charging them to list) and then when you take it you can always mark the house up to make it profitable to you because of the terms you are offering. I think this may get more sellers to list with you instead of trying to discount 15%. If you sell the listing you will get your 5-6% or if you do the LO you will make at least that much.
I think that you need to buy houses for less than 85% of retail - unless you have some landlords in the wings that are willing to buy and just give you an assignment fee.. I also think that a buyer would think twice about listing a house with a realtor that they know has a incentive not to sell the house.
But I have seen other companies offer these types of guarantees and I do not know how they work.
It sounds like a conflict of interest to me. I am not an attorney, this is just my common sense opinion. I question whether a broker would even allow an agent to do this. Better do some research on this. Good luck.
I have to agree with the other responses.
It’s a conflict of interest, and you may have a hard time convincing a seller you’re really going to try to sell their house at $100k. There’s more incentive NOT to sell their house.
Just something to think about.[ Edited by mcole on Date 05/15/2006 ]
Quote:Any way.....if we decided to sell fast, we would Land Contract this home that we obtained for lets say $85k for $105k (remember Comps said it was worth $100k).....
We would collect as much down as possible, as a non-refundable down payment that will go towards the purchase price, plus first and last months rent.....
Then we would make sure rent is more then our monthly mortgage...... mcole,
Sounds like he has his land contract technique confused with the lease option technique. Hard to really know for sure what the real exit strategy is.
Oh, and be sure to spell "guaranteed" correctly.
Good Luck.
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With all due respect legrand, you need to get in the real world, because no broker in their right mind would allow you to do this. It is a major conflict of interest.
LeGrand, so what would be the terms of your buying the house? A top realtor in this area sent me a flyer saying the same thing and it certainly got my attention. I am now a believer. So .... what are the terms that you are thinking for buying back the house?