Believe it or not, in lots of flip deals, the phrase "For $10 and other good and valuable considerations" is enough to secure an option.
Most of the times the homes are run down, owned by someone who doesn't want it and doesn't know how to get rid of it. If you can convince them that you are a serious investor and can solve their problem, what have they got to lose? It's not like buyers have been beating down their door.
I didn't believe $10 could do it myself until I seen it happen. Controlling a property with an ARV of over 150k for 60 days at $10 is like leverage on steroids.
[addsig]
im speaking of sandwich Lease Opts, where U normaly give your seller 1-2% for option and your buyer gives you 3-5%, or more. This gives you up front money to cover any unexpected expensies with the home.
In a nutshell, no, there is no set formula (other than any that you make on your own) for determining an option fee on a piece of property.
When you are buying an option, you try to get it as cheap as possible. When you are selling, you try to get as much as possible.
Using percentages like 1-5% limits your thinking, in my opinion. Sure it would be great if you could get 5% down, but how long will you have to hold it to get it? Also, you need to figure your costs involved. Example: if you took control of a $100K property for only $10 down, and someone offered you a $1000 the next day, would you turn it down simply because you had locked your mind on "3-5%" down? Some would, but my take is that these people just missed a $990 payday. How many people do you know that makes $1k a day?
Also, if you hold out for that big down, how many months are you going to have to make the payment before you get somebody. If the monthly is $600 and you make it for 3 months before you get a buyer, who puts $3k down, then you've only made $1200 ($3K -$1.8K) minus your utilities. An extra 200 for 3 months doesn't sound too good to me.
Great philosophy rajwarrior. There are times when you can get $3,000 or $5,000 or $8,000 option fees but the bigger picture is make the deal if it's profitable to you.
Negotiate. You may say:
"The normal option fee for this type of home is $4,000.00 to $5,000.00 . If I can be flexible in order to get you into the house, would you be prepared to make a slight adjustment in your monthly payment to offset this?"
And this is just one way to look at it. I don't know about you but I hate making mortgage payments on vacant property.
Good Luck.
Buying on rumour or speculation of redevelopment can be iffy (esp. if interest rates are rising), but if your info is solid and you can get an option cheaply enough, why not? You won't be out much if you don't exercise. Try to get as long an option as possible, of course. And though any legal contract is assignable, but just to be safe, when you sign the contract for your option, list yourself as "cjmazur or assigns."
thanks for the input. This is reassuring. I guess the best way for me to find out is to test the market myself. I was thinking that I could potentially be throwing away money since i need to hire an attorney to help write up/look over contracts, and consult in forming an LLC. I could, however, put up a few bandit signs, run an ad, etc. before i actually control any property just to see the results.
It is generally agreed that buying a home from an owner and allowing them a lease option is not a good idea. When it comes down to her not being able to buy the house, for whatever reason, there is a good chance that you will end up in court.
Thanks LOK. That makes more sense. Would you use a purchase agreement when the tenant exercises their option, or just close.
with the seller, i would imagine i would want many of the terms that are found in the purchase agreement to appear in the option agreement then, right? such as providing survey of premise, contigencies, etc.
The unilateral Option becomes a bilateral Agreement once exercised. A traditional closing is used where the particular state-mandated paperwork and requirements will be met.
[addsig]
Read your option to purchase carefully. When buying on a L/O in NC, the purchase agreement has to be recorded as "Exhibit A" to the Option to Purchase agreement.
I am assuming that all of your deal paperwork is in order which should ultimately protect you. Does your lease specifically state that the renter is to pay you the monthly rent? The lease is like any other contract. If it is not specific, it is difficult to enforce. Sounds like the renters found out about your deal with the sellers and it ticked them off. If they do know of your deal, make them understand you provided financial relief to the seller for the benefit of a profit. If they are still beligerent see if you can both agree in writing to break the lease, give them back what you can agree on and get they out asap.
Was the stuff they threw out furniture or personal belongings or what?
I had lease state they will pay $ each month for rent for 24 mth term and and they a had a option at end of lease to buy home and a non refundable 3% deposit if they cant buy home , if they did buy home 3 % will be credited to balance owed on home when they go to bank, also they threw away pic, tables , a/c , lot of pic , pic had been signed, they were no good after rain on , the paint ran every were, i price 1 pic on ebay from same guy sold there to a collector for 1400.00, i had these pic in frame, i had in building 5 pic , was a bad day . Im waiting for july to see if they pay if not , get them out . thanks for feed back
I do not understand. They are your tenants. As tenants, have they done anything for which they can be evicted? Talk to an eviction lawyer because it does not appear that you have a good grasp on landlord/tenant laws or property management (sorry). Once they are evicted, your L/O should state that if they violate the conditions of the lease that the L/O is terminated.
Your other angle is to ask them to move, which is definately the less confrontational choice. But why would you ask them to move by certified letter? Asking them to move is a "hey, i know you are not happy with the situation. so I am offering to let you break the lease, you get the remainder of your prepaid rent back, nd get your option money back. this way you can go find some housing that better suits you. blah blah blah" Cerified letter is what you use if you are evicting them. If you ask them to move and they say yes, it is up to you both to come to terms that are agreeable to both of you. But you both sign a termination of lease (with a specific day for move out) and a termination of option (effective immediately). they get their money back when they are packed and moved out.
If you have a lease, you can not get your tenants to move just because you ask them to move. You must either evict them or come to some mutual agreement - that is then written and signed by both parties.
You are not clear about they moved out and you moved in with those pictures. If they moved out telling the deal is off then you had the right to move in, if not , since they had prepaid the rent for four month, when they moved out, they had not abondoned the property, hence you did not have right to move in, and if you did, they had right to act. However I would consult the lawyers about damage done to your expensive pictures. Secondly after you showing your right to make a deal if they came back, probably they want to stay and go through the lease. I would wait and let them stay until they do something that goes against the lease. Without that I doubt the court will let you force them out.
We the L /seller and t/buyer agreed on terms last week . They would move out by end of june. They exsplained they didnt understand the L/o thing. So we agreed on giveing them there 3% down back and theyll move out. Thank god. Nightmare renters. I ask my lawyor. He said was up to me . But try to be nice and understanding . So i did. Finally there are moveing. Had them to sign a contract they will be moved out by June 29,2005. I would of waited and cancel contract but they already said there were not going to pay . In my state it could take 3 -4 months to get them out . I felt i might as welll take a little loss now than this being stuck in the eviction status. Thanks everyone.
Believe it or not, in lots of flip deals, the phrase "For $10 and other good and valuable considerations" is enough to secure an option.
Most of the times the homes are run down, owned by someone who doesn't want it and doesn't know how to get rid of it. If you can convince them that you are a serious investor and can solve their problem, what have they got to lose? It's not like buyers have been beating down their door.
I didn't believe $10 could do it myself until I seen it happen. Controlling a property with an ARV of over 150k for 60 days at $10 is like leverage on steroids.
[addsig]
3-5% is normaly what you want to charge your tenet buyer, but the more the better.
and would you say the same if you where buying an option on a place?
I'll pay you 1K today for the right to purchase the property for 100K until 5/25/05.
If you would pay 1K to buy a property today at 100K in a year what is the assumed value today for the property?
John
[addsig]
I don't know for sure.
I beleive it will be much greater than or atleast equal to 100K, otherwise I wouldn't exercise the option.
Like a stock option.
Thanks.
im speaking of sandwich Lease Opts, where U normaly give your seller 1-2% for option and your buyer gives you 3-5%, or more. This gives you up front money to cover any unexpected expensies with the home.
HOLLERatG:
The issue is what is "other valuable consideration"?
I'm looking to spend 100K, IF! property value go up alot. leaving the backend number (strike price) undefined, leaves the seller wiggle room.
cjmazur,
In a nutshell, no, there is no set formula (other than any that you make on your own) for determining an option fee on a piece of property.
When you are buying an option, you try to get it as cheap as possible. When you are selling, you try to get as much as possible.
Using percentages like 1-5% limits your thinking, in my opinion. Sure it would be great if you could get 5% down, but how long will you have to hold it to get it? Also, you need to figure your costs involved. Example: if you took control of a $100K property for only $10 down, and someone offered you a $1000 the next day, would you turn it down simply because you had locked your mind on "3-5%" down? Some would, but my take is that these people just missed a $990 payday. How many people do you know that makes $1k a day?
Also, if you hold out for that big down, how many months are you going to have to make the payment before you get somebody. If the monthly is $600 and you make it for 3 months before you get a buyer, who puts $3k down, then you've only made $1200 ($3K -$1.8K) minus your utilities. An extra 200 for 3 months doesn't sound too good to me.
Roger
The idea i to the land and develop it or sell it to a developer.
More details:
There is speculation that a big redevelopment is going to take place in a terrible part of town.
Land is "cheap" now, but won't be if the redev happens.
Idea is, lock up land for .01/$ (?) on speculation land will go up.
I didn't even think of the option being transferable, but I suppose it could be.
Great philosophy rajwarrior. There are times when you can get $3,000 or $5,000 or $8,000 option fees but the bigger picture is make the deal if it's profitable to you.
Negotiate. You may say:
"The normal option fee for this type of home is $4,000.00 to $5,000.00 . If I can be flexible in order to get you into the house, would you be prepared to make a slight adjustment in your monthly payment to offset this?"
And this is just one way to look at it. I don't know about you but I hate making mortgage payments on vacant property.
Good Luck.
Dave
[addsig]
Buying on rumour or speculation of redevelopment can be iffy (esp. if interest rates are rising), but if your info is solid and you can get an option cheaply enough, why not? You won't be out much if you don't exercise. Try to get as long an option as possible, of course. And though any legal contract is assignable, but just to be safe, when you sign the contract for your option, list yourself as "cjmazur or assigns."
DougON,
thanks for the input. This is reassuring. I guess the best way for me to find out is to test the market myself. I was thinking that I could potentially be throwing away money since i need to hire an attorney to help write up/look over contracts, and consult in forming an LLC. I could, however, put up a few bandit signs, run an ad, etc. before i actually control any property just to see the results.
I have a few students in Chicago. You might be missing the actual ads. I teach them to be more creative than "rent-to-own" and We Buy Houses.
[addsig]
With 10 percent down, a person with bad credit can get financed now, but we can deal with a T/B who only has 3 to 5 percent.
[addsig]
It is generally agreed that buying a home from an owner and allowing them a lease option is not a good idea. When it comes down to her not being able to buy the house, for whatever reason, there is a good chance that you will end up in court.
Brenda
You can eliminate the Purchase Agreements. The Lease and Option should be one Contract with the Seller and separate Contracts with the T/B.
[addsig]
Thanks LOK. That makes more sense. Would you use a purchase agreement when the tenant exercises their option, or just close.
with the seller, i would imagine i would want many of the terms that are found in the purchase agreement to appear in the option agreement then, right? such as providing survey of premise, contigencies, etc.
thanks again.
The unilateral Option becomes a bilateral Agreement once exercised. A traditional closing is used where the particular state-mandated paperwork and requirements will be met.
[addsig]
Read your option to purchase carefully. When buying on a L/O in NC, the purchase agreement has to be recorded as "Exhibit A" to the Option to Purchase agreement.
JD
I am assuming that all of your deal paperwork is in order which should ultimately protect you. Does your lease specifically state that the renter is to pay you the monthly rent? The lease is like any other contract. If it is not specific, it is difficult to enforce. Sounds like the renters found out about your deal with the sellers and it ticked them off. If they do know of your deal, make them understand you provided financial relief to the seller for the benefit of a profit. If they are still beligerent see if you can both agree in writing to break the lease, give them back what you can agree on and get they out asap.
Was the stuff they threw out furniture or personal belongings or what?
I had lease state they will pay $ each month for rent for 24 mth term and and they a had a option at end of lease to buy home and a non refundable 3% deposit if they cant buy home , if they did buy home 3 % will be credited to balance owed on home when they go to bank, also they threw away pic, tables , a/c , lot of pic , pic had been signed, they were no good after rain on , the paint ran every were, i price 1 pic on ebay from same guy sold there to a collector for 1400.00, i had these pic in frame, i had in building 5 pic , was a bad day . Im waiting for july to see if they pay if not , get them out . thanks for feed back
I do not understand. They are your tenants. As tenants, have they done anything for which they can be evicted? Talk to an eviction lawyer because it does not appear that you have a good grasp on landlord/tenant laws or property management (sorry). Once they are evicted, your L/O should state that if they violate the conditions of the lease that the L/O is terminated.
Your other angle is to ask them to move, which is definately the less confrontational choice. But why would you ask them to move by certified letter? Asking them to move is a "hey, i know you are not happy with the situation. so I am offering to let you break the lease, you get the remainder of your prepaid rent back, nd get your option money back. this way you can go find some housing that better suits you. blah blah blah" Cerified letter is what you use if you are evicting them. If you ask them to move and they say yes, it is up to you both to come to terms that are agreeable to both of you. But you both sign a termination of lease (with a specific day for move out) and a termination of option (effective immediately). they get their money back when they are packed and moved out.
If you have a lease, you can not get your tenants to move just because you ask them to move. You must either evict them or come to some mutual agreement - that is then written and signed by both parties.
Brenda
You are not clear about they moved out and you moved in with those pictures. If they moved out telling the deal is off then you had the right to move in, if not , since they had prepaid the rent for four month, when they moved out, they had not abondoned the property, hence you did not have right to move in, and if you did, they had right to act. However I would consult the lawyers about damage done to your expensive pictures. Secondly after you showing your right to make a deal if they came back, probably they want to stay and go through the lease. I would wait and let them stay until they do something that goes against the lease. Without that I doubt the court will let you force them out.
Want to update this,
We the L /seller and t/buyer agreed on terms last week . They would move out by end of june. They exsplained they didnt understand the L/o thing. So we agreed on giveing them there 3% down back and theyll move out. Thank god. Nightmare renters. I ask my lawyor. He said was up to me . But try to be nice and understanding . So i did. Finally there are moveing. Had them to sign a contract they will be moved out by June 29,2005. I would of waited and cancel contract but they already said there were not going to pay . In my state it could take 3 -4 months to get them out . I felt i might as welll take a little loss now than this being stuck in the eviction status. Thanks everyone.
Thats was probably a very good desision giving the money back. NC Is definetly looking out for little old tenant buyer.
My Advice...Quit doing Lease Options
When I do a L/O - I lease it myself for 6-12 months, and do a light rehab, then sell it.
I make a decent profit and avoid the headaches of tenant buyers as you know very well.
If you do more L/O, make darn sure your contract protects you in all situations, do the agreement on your terms! Use an attorney for help.
Glad to hear your nightmare is over!