Lease Option To A Realty Company???
Long story short.
We are moving out of state at the end of July, and havn't been able to sell our home we listed with a realtor in May (only 1 showing). It's a very nice home but there are several comprable homes for comprable prices for sale in our neighborhood. It is apparently a buyers market in our area.
Our realtor offered to lease option it from us through his (very well known) real estate company. I assume they will sub lease it.
We have the meeting tomorrow (Friday, July 2) and I would appreciate any advice on what to look out for when doing this kind of deal with a realtor.
For example...
If we do lease option, is he still entitled to his (6%) commission?
Can we use a standard contract?
Thank you
mettinvest :-?
Now, I'm no authority on the subject, but I've done a few lease options. First and foremost, if you're looking for a way out from under your payments before you move into another home, this is certainly one way to do so. Contracts vary from here to there, but his contract will probably say something along the lines of "...I'll lease for x number of months and at any time I can excersise my option to purchase for $yy." Then, he'll probably sell it the same way (except the $yy in this equation will be greater). However, if you're interested in Lease Optioning your home to someone, you can do it without paying the 6% commission. Unless, of course, that happens to be the amount they walk away with once you get your cut upon which the two of you agree. Bottom line, if you find him to be reputable and ethical go for it as ,again, it's certainly one way to get out from under the burden of the payment.
I've worked with a realtor before on a lease option and i don't pay him commission since he gets paid an option consideration upfront from his T/B. You should discuss the option of him getting his commission from the back-end profits he will make by selling your house at an appreciated price from the purchase price that you and him agreed on. I believe he should be happy to go along with that, if he's a reasonable realtor.
Thanks...
We have the Carleton Sheets Lease Option Form, does anyone have another good one?
Thanks, mettinvest
[ Edited by mfualaut on Date 07/05/2004 ]
Thank you to all who responded to my situation.
It turns out that we will be dealing with an independent investor who wants to lease option our property under these terms:
As soon as he can find a tenant to sub lease the home he is offering...
* $4000 cash up front (down payment)
* Monthly payments to cover our mortgage payments for 5 years whether he has a tenant in it or not.
* He is responsible for maintenance and repairs.
* At the end of the 5 year term if he chooses to exercise his option, he pays off our mortgage, we pay for the title transfer - The end.
We have about 11k equity and have to move out of state within the next month. (I am a motivated seller)
This is the only offer we have so far and it seems like a good one.
Any comments or suggestions???
Thank you!
mettinvest
As a Realtor I have in the past taken a listing with the understanding that if the property does not sell I will give a guarantee to purchase the www.property.I have used a lease option form but only when there is a possibility of future profit and I want the Seller to participate. It seems the cheapest way to get the Seller on his way.
The standard way is I buy the property and deduct all the expenses that the Seller would experience. Title, Escrow, Inspections etc. and oh yes commission.
However let me say this, it is my experience that when the property does not sell and the Seller is in a bind and must move on. I really go to work to get him out in as timely a manner as is possible. If necessary I will have him come back with a second to recapture equity. If I think the market is going to climb I advise and structure a deal so that he has some advantage.
I do this because it is good business. I do not want anybody ever saying that I took an advantage. I have split many a future profit with a prior Seller. Most of such persons have sent others to me. I have the reputation of being able to work out any kind of a problem. Some of which can generate no profit. Some of which we do Pro Bono and some we even experience a small loss. I try not to cry.
Cheers Lucius
[ Edited by mfualaut on Date 07/05/2004 ]
A few things...
The offer is a great one for the investor. They take on no risk until after they have found a tenant (future owner). BTW - The future tenant is likely the one coming up with the 4K.
They pay only want it takes to pay off the loan. You get nothing for your equity. Maybe you have less equity then you think. This deal says you have no equity and still have to pay to transfer the title plus wait for 5 years to get your name off the loan.
If they loan is paid down further over the 5 years they pay the lower amount (the balance due). So some of your monthly mortgage payment is going back to the investor in 5 years.
In some states you can not legally make the lease holder (the investor) be responsible for all maintenance. The landlord has to legally continue to maintain the core aspects of the property. Heating, running water (hot and cold) sewage, roof, etc are all things a landlord has to cover or the lease is not valid. The message is if the place is not habitable then the landlord can not expect to collect rent.
I know others will question the point about the maintenance and tell us that they have done it all the time. I also know a court case where the judge acknowledged the present of an option agreement and then found the landlord in violation because the tenant can not agree to take on such things. My lawyer reviewed the details with me when discussing something else. I am told by an investor that the same holds true for Ohio. Not sure about MI.
You only have one offer but you have not tried to advertise the property as a possible lease/option deal (a rent to own add in the newspaper).
I suspect you can do a lot better if you try a few more channels for getting the word out.
Put another way you are spending all your equity and then some more to give the house to the investor.
You will have the loan on your credit report for years to come and the income you receive will not be enough for lenders to say the payments are covered (they normally only allow 75% of the income to be used for the mortgage payment with the remaining 25% assumed for maintenance and vacancies).
If the option is not exercised then you still own the place and have to deal with it from a distance.
If you still want to consider the deal at least counter with something that is more balanced.
John
Quote:
On 2004-07-02 17:21, mettinvest wrote:
It turns out that we will be dealing with an independent investor who wants to lease option our property under these terms:
As soon as he can find a tenant to sub lease the home he is offering...
* $4000 cash up front (down payment)
* Monthly payments to cover our mortgage payments for 5 years whether he has a tenant in it or not.
* He is responsible for maintenance and repairs.
* At the end of the 5 year term if he chooses to exercise his option, he pays off our mortgage, we pay for the title transfer - The end.
We have about 11k equity and have to move out of state within the next month. (I am a motivated seller)
This is the only offer we have so far and it seems like a good one.
[addsig]
Thank you all again.
An update...
The investor wants to take money off the initial down payment to buy a new garage door. (The extisting one is in good shape, it's just older)
We are looking at some of the things that we have as negotiating leverage...
* Including appliances, deck furniture, etc.
To be honest, I am letting a degree of fear of ...not finding another tenant who will be able to give us the money down we need to move, paying the rent on time and trying to manage the property from 2500 miles away.
Help me get a grip and out of the emotion of it all.
Is it possible to scare an investor away with too many "negotiations"?
Thanks everyone!
mettinvest
We need to know:
Value of your home
your montly mortgage payment
PM me when you post this and provide a link so that I can come back to this board and respond with some useful advise.
The value of our home was appraised at 156k last November during our refinance. We owe 145k.
Our mortgage payment is currently $1050 (including taxes, insurance, etc.)but will go up as we refinanced with an ARM that goes up 1% each year.
The investor initially said we would need to absorb the increase each year.
Thank you for any additional ideas.
mettinvest
The value of our home was appraised at 156k last November during our refinance. We owe 145k.
Our mortgage payment is currently $1050 (including taxes, insurance, etc.)but will go up as we refinanced with an ARM that goes up 1% each year.
The investor initially said we would need to absorb the increase each year.
Thank you for any additional ideas.
mettinvest
myfrogger,
sorry I wasn't able to PM. I hope you get this.
Thanks
mettinvest
I love all of these responses coming from supposed investors. Of course it benefits the investor! Hence " creative investing" Also, the term doesn't matter, because the majority of people do not exercise the option anyway, which is an added benefit of lease optioning your home. You can turn around, and do it again! $4, 000 down is a good deal, no matter where it comes from. It sounds like a decent deal to me. I do this every day. I congratulate this owner on having a good investment property, which he is going to gain a bit of monthly cash flow from. Until next time...............
Also, I manage properties all over the country. In this business, sometimes you have to take risks. I would see if I could get a few more offers, then make a decision. It isn't a bad idea to let an investor deal with the property for you. One thing I would tell this investor is that you need at least $50 more per month than your mortgage payment. That is only fair.
Keep one thing in mind- an investor is going to make you an offer that benefits him/her.
[ Edited by miraclehomes on Date 07/03/2004 ]