lease option question
Hi Everyone ! I am in the process of a proposed lease option. I own a land/manufactured home. We are asking 98,500. We have a very interested party. He proposed lease option for 2 years with 1,000 down. 150 a month goes toward the purchase with the final purchase price of 93,500. We have very little equity and live in a small town. We had our home on the market to sell for 6 months with no luck. Please respond 
Chip88:
, the risk is not high that they will default. If the back-end ratio gets above 50%, I will bet you will likely have problems getting rental payments from them in the future. So, the question is, how far will the $1,000 go toward paying the PITI (mortgage, taxes, insurance) on the property if these tenants move in and then stop paying?
How is the person's credit? Will they be living in the property or trying to sublease it? What is the market rent? You say you have very little equity, but you do not indicate whether your mortgage payoff amount is above $93,500. If not, you will have to come out of pocket for the balance if the person exercises the option.
These are all questions you will need to know. The $150 toward the downpayment may be ok if the rental amount they are paying is at or over market rent.
The $1000 down seems a little low, but are they willing to increase it? If not, will they give you a note for another $2,000 secured against an asset they own (car, etc.).
While it may seem like this is a good offer to get you out of the house (especially if you are having a difficult time making the payments), you need to be comfortable with the possibility that if the tenants default on their lease and option, you can get them out of the property rather quickly (b/c in that case you will still be paying the mortgage, but have no income from the tenants). It will generally take you at least 30 days to get them out of the property and sometimes much longer (especially if they file bankruptcy). If they have good credit and their total monthly payments on their debts plus the rent is less than 40% of their gross income ("back-end ratio"
Hope that helps with some of the issues you should consider,
Taxjunkie
Quote:
On 2003-03-24 11:42, chip88 wrote:
Hi Everyone ! I am in the process of a proposed lease option. I own a land/manufactured home. We are asking 98,500. We have a very interested party. He proposed lease option for 2 years with 1,000 down. 150 a month goes toward the purchase with the final purchase price of 93,500. We have very little equity and live in a small town. We had our home on the market to sell for 6 months with no luck. Please respond <IMG SRC="images/forum/smilies/icon_rolleyes.gif">
Hey taxjunkie, I have read your responses on alot of posts and I think you are a very skilled investor. I am actually just getting started and would greatly appreciate your help.
Can you be so kind as to let me e-mail you a question once in a while ?
My e-mail is ggaf18@aol.com
Thanks in advance for your help.
Gary
Thanks so much for your reply ! The leasee will be subleasing to a family member. Our mortgage payoff is more than 93,500. How does this fit in ? In 2 years this will approximately be the payoff amount. Thanks for your input !