How Do The Monies Flow In A LO? What Can Be Used?

Comments(5)

• 
  loanwizard22nd August, 2003

  Quote:
  On 2003-08-20 14:50, zolius wrote:
  I am curious about what monies are available to me if I LO out a home. For instance, when a tenant puts down $10K in non-refundable option money, is that locked up until it is used/losed, or do I have access to it during the lease period?
  
  It is yours to do with as you see fit. With your questions, you better put it in the bank until the end. It is not even taxable income until the option is exercised or forfeited.
  
  Same questions for monthlies that apply towards principle... If rent is $1200 / mo, but $100 goes towards option money, does that $100 have to flow to a seperate account (i.e. escrow)?
  
  Again the extra is income.
  
  If the tenant does exercise the option at the end of the lease, does the option money just apply to their mortgage, or is it received by me as cash?
  
  If they exercise it, there will be a hud1 statement that shows the disbursement of the funds.
  
  I'm just getting started at looking at LO and REI'ng so thank you for answering my simple questions. <IMG SRC="images/forum/smilies/icon_smile.gif">
  
  Example: You own a property. You owe the bank $100,000.00 (Bal. in 24 months) You L/O the property to someone who has 10k option consideration. Your payment to the bank is 1000.00. Your monthly rental charge is 1100.00 with 100.00 per month credit toward the purchase price. In 24 months if the T/B exercises the option would owe $110,000.00 - 10,000.00 - 1200.00= 98,800.00 You would owe the bank 100k, so your profit would be 10,000.00 even though you would bring 1200.00 to the table because you had already received 11,200.00.
  [addsig]

• 
  2000rock24th August, 2003

  zolius,
  
  YeahRIGHT...OK!
  
  Let'sMakeThisEasy....
  
  "I am curious about what monies are available to me if I LO out a home. For instance, when a tenant puts down $10K in non-refundable option money, is that locked up until it is used/losed, or do I have access to it during the lease period?"
  
  It'sYours...PERIOD!!
  
  "Same questions for monthlies that apply towards principle... If rent is $1200 / mo, but $100 goes towards option money, does that $100 have to flow to a seperate account (i.e. escrow)?"
  
  BetterSuggestion...Pick the InterestRate ...you charge them ...do a 30 year amort. on the property including your T&I ....That's what they pay and give them the principal reduction as if it was a 30yr loan...
  
  ...NoEscrow
  
  "If the tenant does exercise the option at the end of the lease, does the option money just apply to their mortgage, or is it received by me as cash?"
  
  It'sYOURS...
  
  .....and then YouCanDoItAgain!!!
  
  "I'm just getting started at looking at LO and REI'ng so thank you for answering my simple questions"
  
  HopeThisHelps...
  
  
  ....as always,
  
  
  GoodInvesting, Rocky

• 
  zolius24th August, 2003

  Thanks for your help Rocky!

• 
  InActive_Account25th August, 2003

  Technically the option money is yours right away. The IRS does not consider this even taxable income until you close the deal. I guess they figure that you will have to put up the money at close of escrow so its not like it was taxable income anyway. Remember, if you spend it, your net profit at COE will be reduced by that amount.

• 
  td25th August, 2003

  Rocky,
  Great post!!Don't you just love Lease/Options!!
  
  Prosperous investing,
  td