Option Fee
When you charge your option fee to your T/B it is usually non-refundable and it is "credited" to the purchase price of the property. Does credited mean deducted...? from price you are charging T/B
Question: Does this mean as an example if I charge a 3000$ option fee to my T/B and lets say he buys and cashes me and the Seller out 2 years later...do I have to refund that 3000$ fee to him or do I just deduct it from the purchase price of the property...? Or can the lender for the Tenant/Buyer accept the option fee payment as credit for a "down payment" on the property...? Which this seems much more advantagous to me
Just a little confused. Seems kind of silly to charge a option fee only to have to pay it back or even credit it back against the purchase price. Heck, just lower the price, "so says the T/B" Unless, the idea is to have an interest free short term loan ala the option Fee. I guess that is good. I was told by a mortgage broker, that many lenders will not necesscerly credit that fee for a down payment, they assume that we are somehow in collosion together.
Any thoughts on this much appreciated.
Bob
This largely depends on what your agreement is with your T/B and also what is allowed by law.
The main argument against for having the option and additonal rental credit be credited towards the down payment of the property is that if the t/b excercises his/her option but can only qualify for 90% LTV, they may already have 10% down or at least a head start from the credit.
The main argument against this is that in some states these credits create an equitable interest in the property and you, as the landlord/owner, would need to foreclose their interest rather than simply evict.
If the funds are credited towards your t/b's down payment, you do not have to come up with those funds again at closing. You simply sign a form stating that you have already received $XXXX from the buyer.
You should consult with an attorney familiar with your states' laws to develop a good plan when doing lease/options.
GOOD LUCK
Seems kind of silly to charge a option fee only to have to pay it back or even credit it back against the purchase price. Heck, just lower the price, "so says the T/B"
I would be reluctant to enter into any business relationship w/ a person who has nothing to lose if they do not perform. If I have 3 grand of your money you are more likely to keep up your end of the bargain.