Lease Options In Declining Markets
For those doing lease options in the declining markets what programs or clauses do you use to address the fact that a locked in price today may not be a price that a buyer can get a loan for in 1-3 years.
I have seen contracts that state when prices drop lower than 5% the seller and buyer have to renegotiate to a fair price. That probably will not work.
I have also heard of applying the initial option consideration to the purchase of another home if they cannot get the appraisal they need.
Thanks
I am working a deal where I am trying to lock in a certain cap rate.
I see it as a gamble by the buyer- if the market goes up, the buyer wins by getting the house below market, and if the market goes down the seller gets the option fee when the buyer backs out of the deal.
Frankly the seller loses either way- he could have gotten more in an up market, and could have sold it for more if he had sold it before the market dropped in a down market.
The seller only wins if the market stays the same and he is getting more from the lease option buyer than he could have from an immediate sale, or could not have moved the property otherwise. Other advantages are a stable tenant that treats the property like an owner, and increasing the hold time to convert the sale to long term capital gains. Plus the potential for higher rents, and the benefit of the lease option fee in addition to regular rent.
This is just my take as I consider selling on my first lease option- does anyone else see it differently?
Chris
ive got a couple of properties under contract but im having trouble finding tenant/buyers with 5%. what i do is i set the value of the property today and they cannot refinance or resell it below that value - period. if they want to walk away, then they will either have to find a replacement tenant/buyer with 5% or we can just simply retail it on the market and split the profits. either way they get the first right of refusal.
make sure youre the one in control with your terms - period. hehe