Have House For Sale And Investor Want To L/o
i have a house for sell that an investor called about l/o it from me. i was just wanting to sell it and get the cash but may consider a l/o . what would be a good way to go with the l/o so that i can get some cash upfront. the house is worth $110,000 and i have it for sell at $100,000. i have not discussed any thing with the investor yet. i am triing to get in investing myself so thought this may be a good start and a chance to learn. thatnks for any advise.
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I am in Florida and may be interested in buying.
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N.
Well I am sure this will bring a firestorm but L/O's as a rule are not such a good deal for the seller. Why do you have to sell at $100,000? Is that your underlying debt? Why do you want to sell at all?
the mortgage is only 87,000 so i was going to make a profit and a good deal for someone else. i have it rented right now but not sure if the tenants can handle the rent hike i am going to have to give them. i was thinking of selling it off and buying something cheaper that i can make more profit from renting it. thank you for the input on being the seller.
Why not just lease option it yourself? That way you can command a higher rent and if they buy you can make a much larger downpayment.
Peace,
Mitchell
right now i live in atlanta and the house is in florida so it is kind of hard to deal with it because of that but i am going to be moving back soon so i may do that . how do you find tenants yourself and how much rent credit and such do you give. i have never done a lease option so i am not sure how it all works and how to word everything in the contract. right now it is under a plain lease.
Tenants are easy to find. Just run a classified ad, something like "No Qualifying! 3b2b home in great location. 5K down, 1200 a month! 555-5555." Something like that, you'll figure it out. They seem to come out of the woodwork man. You can give rent credits or not. The main thing you need to do is make sure they have paid up to 10% of the purchase price when(if) they exercise their option.
With yours you could sell on a LO @ 125K, 5-6K down, and give like a $100-250 rent credit or whatever. Really not that imporant. Shoot for a two-three year lease. I normally sign someone up for a one year lease that can be renewed. That way, if they decide to leave after the first year I still make the 3-5K from the option deposit (remember non refundable) and the monthly cashflow and I just find someone else.
I mean, even this way you could still make amost 40K in two years. Better than the 13 you'd get from selling now, of course, you'd have the 13K now. Your choice. I like have cashflow and a little money upfront myself.
Here's the rough numbers I got:
Sales price: 125K
Rent credit: 250.00 per month
Option Deposit: 6K
Cash flow: 300 x 24 = 7200
Back end: 125-12K(credit and deposit) =113 113 - 87 (mortage) =26K back end
Profit: 26 + 6 + 7200 =39200
That doesn't count closing cost, but that shouldn't be too bad.
Peace,
Mitchell
PS. You can use a standard lease like you are since you are on the title and just add a second form called Option to Purchase Real Property. You can find those on the internet. Pretty generic stuff. Remember! Do NOT mention the option in your lease and do NOT mention the lease in your option and ALWAYS record a Memorandum of Option at the court house.
So where at in florida?
This would make me even more reluctant to give a L/O. My impression of Florida properties is that prices are appreciating rapidly. This is a good thing if you are the buyer under a L/O because you get to participate in the increase of value without the risks of having your credit on-line for the purchase. But if you are the seller you are taking the risks of on-going ownership without participating in the benefit of increased value.
Why are you increasing your tenants rent so much? Are they not currently coverering your opperating expenses? Are they otherwise good tenants?
when i first rented it to them it barely covered my expenses but now they went up so i am having to pay on top of the rent to cover it. the tenants are great and they want me to do a lease opt. with them but they dont have the money for a deposit.
i would like to thank you both for all the advise. i have a few more questions for you. first the house had a sink hole that was repaired, in florida this is common though people frown on it. the house is very nice and nothing is wrong with it at all. it is a 2/2/2 corner lot fenced yard with sprinklers and alarm system. it is in a great neighborhood were the values are steadily going up. about three months ago when i looked the 2 bedroom houses where selling for $110,000 and up and looked nowwhere as nice as mine is. so what i am asking is knowing this how would you two profesionals set up the deal. keep in mined i have it rented but i dont know if they can swing the payments but their lease is up july 1. thank you both again. also can you recomend some literature i could get to help me out in this.
thank you neil for your interest i sent you a message so hope to hear from you soon my email address is in there so you can use that if you wish. the house is in port richey florida in jasimine trails subdivision
Hey, you neglected to mention one thing. How much is the current rent and what is the market rent for the area? Also, how much rent can they afford? Lets take some hypothetical numbers into consideration since I don't know your real ones.
Say you're renting for 800 per month which covers your expenses. Market is 1000, and your seller can afford 1000-1200. Well, tell them, they can stay in the house with an option to purchase if they pay a little extra rent every month and you'll apply that extra rent and possibly a credit for all the previous months to reduce the cost of the house when they decided to exercise their option.
This is what I'd do.
Current rent: 800 (covers expenses)
New Rent: 1200 (gives you 300 cash flow)
Option for 36 months with a purchase price of $130K. Give them rent credit of 350 per month for all future payments. If they lived in it for a year before, you could give them another 100 rent credit for those months. Just make sure you can prove they've paid about 10% of the cost of the home so they can get financed. Now, you've got a house, after credits will give you a profit of around 30-40K. Not bad if you don't mind holding it for a while. But again, if you don't want to hold, sell that biatch. Just depends on how bad you need money.
Peace,
Mitchell
Kingmonkey, in an earlier post you said not to mention the lease in the option and vise versa. Do you mean not to check "This option is Part of a lease between buyer and seller" on the Option to Buy Real Estate Form? And check "unrelated to any lease between the parties"?
Thx
Kingmonkey, in an earlier post you said not to mention the lease in the option and vise versa. Do you mean not to check "This option is Part of a lease between buyer and seller" on the Option to Buy Real Estate Form? And check "unrelated to any lease between the parties"?
Thx
What I mean by not to mention the lease in the option is just that. When you prepare your option have it be a wholey seperate form that is signed by the buyers. You have your lease that states they are leasing the property from you for x number of months for x amount per month.
Then, you have your option agreement which basicaly says: "Sally Buyer agrees to buy real property at 123 Fake St, Anytown, You Suck TX 76048 within x number of months from the time of signing..." blah blah blah, legal crap and more legal crap. All the option is is another form that goes along with the lease but is separet of it.
By the way, don't put check boxes into your lease or option concerning the option or lease. You never know what a judge might think of that. Just keep the two forms completely and utterly seperate from each other.
Peace,
Mitchell
I'm not sure I agree with Mitchel on this one. Perhaps you could inform me about your reasoning? Seems to me that if the documents are actually stand-alone you are in real danger in the following scenerio: The tenant defaults on the lease you evict and re-rent the house. Tenant number one now show up wanting to exercise his option. There is some chance the court would rule that since they were stand-alone documents the tenant still has his option rights even though he defaulted under the lease agreement.
Exactly what I was thinking- I know you want to try to keep them separate, but- I ALWAYS want a clause in my Option agreement that states the option becomes null and void if they are EVER late on their standard rental payments, have monies owed from the lease, or are in, or ever have been in, an eviction process. This way, if they are crappy tenants and ALWAYS pay their rent late, it voids their Option agreement. But- how do you incorporate that when you're keeping your two agreements separate?
D
Commercialking, you're killing me. Just when I thought I had a grip on selling via L/O, you bring up another good point.
Since most of the advice I have read advocates complete separation of the two halves, what would you suggest?
Also, you mention that L/O is a poor way to sell. From the reading I've done, it appears (very UN-educated opinion, mind you) to probably be the best way to sell mid to low end SFR's. I would be grateful if you could explain some of your thinking on this or point me toward a resource or thread which you agree with on the subject.
Thank you.
*edited to say*
OK, I just re-read some posts. I THINK, if I'm understnding, that the solution is to have the rental agreement completely untainted so that there is no implied ownership interest in any way. In other words, no rent credits, or any language even hinting at anything other than a standard lease. I'm guessing this is the most important part of the separation... that the lease contract stands on it's own and does not imply any form of ownership...
The option contract as well would be a straight option, and would make no reference to the lease EXCEPT for the singular clause nullifying the option in case of default of the other. If the option contract were properly worded otherwise, this clause should not cause a problem.
(thx previous post... I think it's starting to sink in...)
Still be interested in Commercialking's take and why L/O is not a good sell method.[ Edited by thestudentisready on Date 05/18/2004 ]