When its time to sell...and the market goes "up" 2 years down the road. At the end of the contract you have allready agreed on a purchase price 2 yrs prior at the time of signing. You would lose money then if the tenant buyer exercises his option to buy, correct? Instead of selling the house at the future market prices.
If it goes down however you are allready locked in at a higher purchase price than the houses are selling for. In that case then tenat buyer would more than likely not buy it.
When you enter into your lease/op with a tenant/buyer, you agree upon a sale price and YOU attempt to guestimate the market value of the home a few years down the road (by the end of the lease/op i.e. 3 years). So the OP price you give the tenant/buyer is ABOVE todays market value!!!
But YES if it is a good market, more than likely the home will be worth MORE than the option price towards the end of the lease/op..
Profit center has three areas:
1) Option deposit upfront by new tenant/buyer
2) Difference between your monthly payments to owner/seller and the payments from your tenant/buyer each month.
3) The backend which is the difference between your option to purchase price (between you and the seller/owner) and the option price you agreed upon with your tenant/buyer..
Right its above the market price today...but LESS than the price you think it will be(say an average of 5% for 2 years). so say you buy a house for 220K, price it out at 250K and then sell it(in the contract) for a future value of say 259...when the 5% would indicate it should be worth 275k. That spread between 259-275 would be incentive for the tenant/buyer to purchase it.
[addsig]
Wouldn't it make more sense to just rent it for 2 more years to regular tenants and then sell in 2 years and get the apprection value at that time? I cannot seem to wrap my mind around the fact that this ( l/o) could be a good thing for a seller! Help!!!!!!
The benefits for the original seller could be enormous. First and foremost he is having someone else make his payments without the hassle of manageing his property, most times from a distance. He is is still retaining all his tax benefits. For tax or other reasons he is pushing his capital gains out sometime in the future.
Not all sellers recognize these benefits or need them. It's our job to point them out and see whether they are motivated by any of these benefits.
Darwin in NM
you get paid with non refundable option deposit upfront... monthly "up charge" on the rent... and the back end spread...
and non qualifying .... walk right in and control property..[ Edited by DaveREI on Date 10/23/2003 ]
Is part of the l/o benefit is when the tenant does not excerise the option to buy?
Its an added bonus... you get to turn it again..
i think im confused on one issue.
When its time to sell...and the market goes "up" 2 years down the road. At the end of the contract you have allready agreed on a purchase price 2 yrs prior at the time of signing. You would lose money then if the tenant buyer exercises his option to buy, correct? Instead of selling the house at the future market prices.
If it goes down however you are allready locked in at a higher purchase price than the houses are selling for. In that case then tenat buyer would more than likely not buy it.
[addsig]
Wrong goober
When you enter into your lease/op with a tenant/buyer, you agree upon a sale price and YOU attempt to guestimate the market value of the home a few years down the road (by the end of the lease/op i.e. 3 years). So the OP price you give the tenant/buyer is ABOVE todays market value!!!
But YES if it is a good market, more than likely the home will be worth MORE than the option price towards the end of the lease/op..
Profit center has three areas:
1) Option deposit upfront by new tenant/buyer
2) Difference between your monthly payments to owner/seller and the payments from your tenant/buyer each month.
3) The backend which is the difference between your option to purchase price (between you and the seller/owner) and the option price you agreed upon with your tenant/buyer..
Hope that helps,
Chris
Thanks Chris,
This helped alot. Thanks for answering
Quinn
Right its above the market price today...but LESS than the price you think it will be(say an average of 5% for 2 years). so say you buy a house for 220K, price it out at 250K and then sell it(in the contract) for a future value of say 259...when the 5% would indicate it should be worth 275k. That spread between 259-275 would be incentive for the tenant/buyer to purchase it.
[addsig]
The incentive for a TB to go on an L/O is not a less than FMV price. It is the fact that they can finally get a house.
Remember that this deal is a two way street. They get to buy a house and you get FMV.
I am defining FMV above as the future value (when they will actually purchase it).[ Edited by thomasgsweat on Date 10/29/2003 ]
Wouldn't it make more sense to just rent it for 2 more years to regular tenants and then sell in 2 years and get the apprection value at that time? I cannot seem to wrap my mind around the fact that this ( l/o) could be a good thing for a seller! Help!!!!!!
The benefits for the original seller could be enormous. First and foremost he is having someone else make his payments without the hassle of manageing his property, most times from a distance. He is is still retaining all his tax benefits. For tax or other reasons he is pushing his capital gains out sometime in the future.
Not all sellers recognize these benefits or need them. It's our job to point them out and see whether they are motivated by any of these benefits.
Darwin in NM