What Should I Do? L/O?
I have a house that I've rented now for about 6 years. The rental market here in Atlanta is rather soft; I once rented for $1200 (with seven late payments of $120!) and will now hope to get only $900. There are many (probably 4-6) houses for sale on this particular street of cluster homes where every third or fourth house is the same, which has actually pushed the pricing DOWN almost 10K!
I would like to sell the house in order to use my equity to invest in a RE avenue other than residential rentals. I don't need the money immediately, but within the next 12 months or so. I was thinking that a L/O would be a good way to fill the vacancy quickly and also still get a good price if and when it sells. Am I right?
If so, here's my questions:
1) Where can I get a L/O contract to use?
2) Does a L/O mean some kind of owner financing?
3) So a 3-5% nonrefundable downpayment of the purchace price would be in lieu of a rental deposit, right? If you didn't sell, would you refund any monthly overpayments that the buyer might have paid?
4) So when the lease runs out, and the buyer can't exercise the option to buy, don't they just beg you to extend? How do you actually say, "See ya, thanks for the downpayment, dude!...Next!" Not to mention the dude leaving you with 3-5% damage since he thinks he's paid for it anyway!
Thanks in advance for your thoughts!
1. You need more than just a Contract. You need a Course that explains how to fill out the Contracts correctly, as well as a detailed explanation of how a properly executed Lease Option works. Lease Options contain an element of risk, and only through knowledge can we minimize the risks and safely increase the rewards. The Lease and Option should be two separate Agreements. The Option should be contingent upon the covenants of the Lease, but the Lease should not mention the Option at all. The Option should be as short as possible (preferably one page), in plain English (have protective clauses explained sans legalese--at a seventh grade reading level), and contain the word "nonrefundable" in bold print and capital letters, including having the T/B write in his own handwriting (and initial), "I fully understand that all money I pay is nonrefundable."
2. No--and your Contract should state that it is not an Agreement for Deed (another name for CFD or LC), is not any form of owner-financing, and does not create an equitable interest of any sort.
3. The rental credit (if applicable) should only apply towards the purchase price IF, AND ONLY IF the T/B exercises his right to buy; otherwise, it is nonrefundable. The same goes for any higher than market rent you collect. Technically, you should still collect a security deposit, as the Lease Agreement is separate from the Option and stands on its own. Renters pay security deposits. I don't charge a deposit (to avoid security deposit laws), but I still have the deck well-stacked in my favor.
4. They don't damage the property if they don't buy (at least I haven't experienced that), because I will go after them to the fullest extent of the law, and they know it. Yes, you could give them another year IF they are truly serious about buying. In that case, I would collect a small amount of "additional Option consideration" for the right to extend (at least $1,000), and I would do this only if you have ample time with the Seller (at least three years). Also raise the sales price if giving the T/B an additional year. I have the Seller agree to X number of years that run concurrent, while I agree to only one year (with the right to renew at my discretion). Note: Since you own the property, ignore my advice concerning the Seller; it's placed here just to help other readers.
[addsig]
my t/bs that don't exercise the option do not do any damage to the prop., other than normal rental damage. carpet,paint that sort of thing.