Selling For Future Value On L/O

Hi all. Newbie rehab investor here. This is my first post - I have been an avid TCI lurker but now I need specific help.

We just finished our first rehab project that we picked up through a SS and are ready to sell via L/O. We sold our primary residence L/O before, so I am familiar with the overall concept - however, I must say that we made a million mistakes on our first L/O, so I want to make sure to avoid any unnecessary pitfalls this time.

My main concern is this - I know most of you will sell on L/O taking into account the future value of the property, rather than its current appraised value. Our property's appraised value is $100K - I was thinking of a 4-5% increase over that on a renewable one year lease. The first time around, the T/B requested a copy of the appraisal to see how we arrived at our asking price. Assuming this happens again, how do I make it sound like a win/win to the T/B without appearing overly greedy? Thanks in advance.

Comments(12)

  • hisheritage12th January, 2005

    Hello, I'm a newbie too, but here's my take... You are doing them a favor by offering a L/O. Therefore, you are entitled to above market rates for your property. If they had the cash to buy now, they could get it at market pricing! Don't worry about appearing greedy, you are providing them the opportunity to purchase a house that they otherwise would not have. Besides that, isn't the property value going to increase over that year?

    Just my $.02

    Rob

  • myfrogger12th January, 2005

    I find it unlikely that this question would be asked again. Most of my advertising is regarding the bottom line--what is my montly payment? These people are likely renters now so they have always been thinking in terms of montly payments.

    I used to advertise just the principal and interest payment to make the home sound cheaper but I find that putting the full PITI payment in there produces more qualified callers.

    GOOD LUCK

  • kenmax12th January, 2005

    you can have it appraised for them if you like or tell they can have it appraised if they are questioning the value, or sort of a "take it or leave it" deal. ........km

  • bdmartin12th January, 2005

    Thanks for your replies. The first time around, the buyers were more astute than what would likely be the typical L/O buyer. From day one, he was a royal pain.

    We made several mistakes in that deal that we do not wish to make again, including 1. Signing a three year agreement, 2. Giving out our home address/phone number, 3. Not collecting an option fee or making anything nonrefundable (other than the monthly "credits), and the big one: 4. Signing a three year agreement at a discount from what the appraised value at the time was.

    Yes, I know. And those were just some of the dumb things we did. Our house had been on the market with a terrible realtor 6 months, we had a baby and we just wanted OUT. At any rate, we are ready to take the plunge again, learn from our experience and that of others, do it right and make money while potentially helping someone out.

  • JohnCl12th January, 2005

    Advertising monthly payments seems like the way to go. If they ask for the total price say you will sell it for the appraised value + the appreciation rate for your zip code and tag that on. If you don't have a recent appraisal, get a realtor to do a CMA for you.

    Our market is so weak I am happy to sell for today's appraised value one year from now and give the buyer a $400/mo rent credit. You have to make money on the buy here.

    Someplace like Florida would be completely different. A lot less equity on the buy but it will appreciate and sell much quicker.

    JohnCl

  • kenmax13th January, 2005

    [ Edited by kenmax on Date 01/13/2005 ]

  • michealpage13th January, 2005

    I personally like to make the money on buying the house and letting the tb benefit from the appreciation of the house. It makes them more receptive and more likely to excercise the option. Plus I think it's more ethical than trying to squeeze every last dime out of the tb.

  • bdmartin14th January, 2005

    Here is the ad we are putting in:

    Rent to Own:
    4 BR, 1.5 Bath home, newly remodeled with over 1600 square feet in family-friendly neighborhood. Everything brand new with all appliances included. $825 per month with $100 rent credit toward purchase price of $104,000. Why rent when you can own? Call xxx-xxxx

    How does this sound?

  • michealpage14th January, 2005

    It sounds good, but kind of wordy. Which isn't a bad thing if you have reasonable rates in your newspaper. That ad would run me over $800/month in Denver. You might want to include something about a small down payment.

  • pmscott18th January, 2005

    I would ask for a $1200 option. Your goal is to sell the house not rent it. Currently if the tennant leaves you got nothing but an empty house and more $ to spent on preping the house and advertising again!!!! ;{

  • iamhappy18th January, 2005

    Are you also asking for a non-refundable down payment up front towards the purchase price or just the $100 rent credit?

  • bdmartin18th January, 2005

    Thanks for the replies. I am collecting a non-refundable option fee this time around in addition to the security deposit. Didn't do that the first time either.

    Wish us good luck!

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