Large Option Fee Hides A World Of Sins?
I am a landlord and now just starting L/O. I want the tenant to rent for 12-18 months and then exercize the option. The rent is 950 with 50 rent credit, sales price is 113k, option fee is 3,800. I have a guy that is looking for his daughter.He wants to give me 8k down. He says that she was the victim of identy fraud so her credit is shot. Her rental history is renting a room from a seasonal person. As a landlord I would never consider her as a tenant. 1) those that show up with cash are TROUBLE! 2) adults should not be renting rooms 3) adulst should not have their father finding their house.
But 8k down? Trying to find out how a L/O person thinks. And he does want lower monthly payments because of the large down. She was paying $625 before. Another landlord rule of mine is that more than 15% increase in the rent is trouble.
So what do you L/O people think. Any help is appreciated.
Brenda
Well the wonderful thing about the down is that it is a non-refundable option to purchase. Make sure the father and the daughter understand that if the break the terms of the lease that this optionmoney is forfeit. Hence. She misses one payment she will lose her 8k option money. Make the rent 900 a month. No rent credits. If daddy is bailing her out now. You can be damn sure he will bail her out when she can't make a payment so that she doesn't lose the 8k
also have him sign the lease with her so he is responsable for the rent aswell. You can tell him that after 12 or 18 months if she cant get quailifed he can. The good thing about doing it this way is after 12 months you can get them refi to cash them out.
Quote:
On 2004-01-13 08:26, dgtop wrote:
Make the rent 900 a month. No rent credits.
Why no rent credits? I'd think you would want to make the rent maybe $100 or so above current market rates with the difference being a non-refundable rent credit. If they don't exercise the option, you keep the extra $100.
Quote:
On 2004-01-13 12:58, perfecto wrote:
Quote:
On 2004-01-13 08:26, dgtop wrote:
Make the rent 900 a month. No rent credits.
Why no rent credits? I'd think you would want to make the rent maybe $100 or so above current market rates with the difference being a non-refundable rent credit. If they don't exercise the option, you keep the extra $100.
Because then you open a whole can of worms of how much interest and controle they have over the property. Picture yourself in court a year from now and you are trying to evict for nonpayment of rent. And the judge tells you that YES the buyer has a legal interest in the property because they have been getting $100 credited to the purchase price. OUCH
PLEASE talk to an attorney. With 8K you have plenty to have the atty do the contract and advise you what to watch out for.
I always thought that if you stated in the contract that they get the rent credit ONLY if they make all of the payments on time. If they miss a payment, all the credits they have accumulated up to that point are now gone. So say you were giving a $100 credit each month but after 8 months they miss a payments, that $800 they had going towards their purchase is now gone from their record and they have to start over. Wouldn't that protect you from "equitable interest" if they took you to court?
Why would non-refundable rent credit money be treated any differently than non-refundable option consideration in terms of equitable interest issues?
If possible, how much room do you have before you are at a negative cash flow. By getting the 8k option money, you are getting 4200 more today as opposed to over the course of 12 months.
I would look at your cash flow, see if you can come down a little in the monthly and move them in. If they default, kick them out. Explain to them that if you do take a bigger option amount and lower the monthly payment, you might have to lower the credit amount. But since your only giving 50 bucks, keep it at that rate.
I wouldn't nickle and dime these properties. Many get creative when buying but when it comes to selling, boy do some freeze up.
Make the numbers work and protect yourself with your clauses...everything should work out.
My only comment here is that I remember learning in my broker course that a court will usually say that an option was not an option if you applied monthly payments from the rent. Legally it has crossed the line into becoming a land contract and the courts would say that the buyer has equitable title and therefore more rights. I don't know alot about these and am trying to learn more about them myself but I do remember learning this.
Just wondering what is the point. If she has the world's worst credit - which is how I interprete the "vicitim of an identify theft" line - and she needs lower monthly rent, what are the chances of her buying the house? I was going to offer owner financing but probably will not if she needs lower monthly payments than the current rent. The land contract payments will be a bit above current rent at $950 once you factor in insurance+taxes. So her pushy father is offering me a large amount of money and I know that his daughter will not qualify to buy the house. How pushy do you think that father will be when I do not renew her lease/option? Sounds like a recipe for disaster. But I am still thinking of that 8k.
Brenda
If I understood your post the $8K is down payment on the house. If that is so, it is not due until the option is exercised and the property purchased. The danger to you is that you offer lower rent and the option is not exercised and you never see the $8K. You might front load with a larger option consideration. You might credit part of the option consideration to the purchase price or have it be a reduction in down payment. Hope this helps.
Regards,
Ed
down = option fee
Just know that people who are pushy and agressive will not let 8k just go even if the daughter is late ever month on the rent.
Brenda
Brenda,Do not change the terms of your offering for www.anyone.It sounds to me like this woman will be nothing but TROUBLE! Even with the extra option money will this take care of the damage and legal cost to defend yourself.Pass on this offer and move on.
i have taken my T/B to my broker and looked up FICO scores..its part of my prequalify package..low 500's now can be improved over time with on time payments..i also use a loan servicing company to collect and distribute funds..i use this as it helps my brokers to their lenders track the on time payments, its a good record..i also put a portion of my option money in escrow with my LSC..i also use two contracts, one for the lease and the second for the acquisition..
if you have your note at a discount at 100 thousand owed and you sell at the top of your appreciated home's FMV at 150 grand in two years, then any way you collect the upfront, middle or end is arbitrary as you decide just when you want your equity..no matter how you look at it your dealing with 50 grand.. gettiing offered a high consideration upfront is just a mind set-try not to read into it..have a paper trail and relax. reduce your risk..you might be surprised at how documented payments(on-time) will go with a lender with terrible credit..hope this helps a little..
regards-pat
there's a service online called Dead Leads.
Never used it personally.
-oops replied to wrong thread! ha[ Edited by thinkchip on Date 01/18/2004 ]
Even with 8k, she wont be able to get a loan in a year or two with her credit. You want to lease option to someone who can perform so you can get out.
Talk to the Dad. Maybe he can be on the lease also and worse case get a loan in
his name or co-sign. If not, I would try to find someone else.
Jeffrey Adam
[addsig]
Not necessarily.... There are many investors who count on the TB not being able to buy. Statistically speaking... only 1 in 4 TB's actually follow through and purchase. There are many that make their term with the TB only 1 year. I am not saying that this is a good thing to do, I am merely saying that it happens all the time. That being said, take the 8k. If she defaults, take care of business!
IMHO
with 8 grand and a well structured lease /purchase program, it could work..i take in my potential T/B's into my broker and establish a good relationship with the lender of choice, what works with great success is a reputable LSC that the lender recognizes..each lender generaly will suggest tasks through-out the the lease to help improve credit rating and credibility with the lender..on time payments, responsibility and a willingness to improve ones financial and credit dilema goes a long way towards ownership..we all know how impersonal and cut and dry lenders can be since the FICO created so much weight, but, i believe showing a compelling reason for ownership in person (via phone, fax, us-mail, e-mail, what ever) can work as a lenders risk..it doesnt work all the time but for me and my T/B, its worth the effort..plus, it helps out with referals as well..just a suggestion..
regards-pat[ Edited by patricc68 on Date 01/18/2004 ]