Lease Option On Homes That Drop In Value?

Lets say you have a home worth $400k, with a total loan amount of 400k, In August 2006 you have signed a contract with a T/B for a 3 year lease option of $495k. My question is, In three years, August 2009, what if that current property of valued at $400k drops to 315k.....what would you do?? how would you structure a deal like with from the original owner and T/B?? Also, if the home is worth 315k and the T/B chooses to excercise that option, will the bank likely drop that note??

[ Edited by sixti1 on Date 09/04/2006 ]

Comments(5)

  • fmcarr197313th September, 2006

    WOW very insightfull you are the King and I thank you very much!





    fmcarr1973

  • LeaseOptionKing7th August, 2006

    You should consult with your tax preparer. You might be able to sell it outright with no immediate tax consequence (if you do it correctly), since you are investing in another home.
    [addsig]

  • mtnwizard8th August, 2006

    Yes, you are exempt from capital gains if this property was your primary residence for 2 of the past 5 years. You and your spouse each have a $250K exemption.

    As to landlord headaches, you still have the same ones when you lease option your property -- maint and repairs, collections, vacancies, etc. The biggest potential headache is invisible: equitable interest, something a tenant can easily prove if he/she has received any rent credit, credit toward down payment, etc.

    Good luck to you.
    [addsig]

  • ZCore8th August, 2006

    Thanks everyone for your replies.

  • LeaseOptionKing8th August, 2006

    And BTW, why did you claim equitable interest? I use that as leverage to force non-judicial resolution (threat of a foreclosure), but you would actually simply go for a specific performance suit if the Seller balked. And the Deed should be escrowed anyway.
    [addsig]

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