Advice Please - Lease Op with variable rate? - Posted by David (CA)

Posted by David (CA) on June 28, 2001 at 16:36:19:

What should be done about the current renters. In California renters have lots of rights on a month to month lease. An owner can terminate a lease in order to sell, but would a L/O constitute a sale? Can I get a lease op agreement signed this week even though there are renters currently in the property?


David (CA)

Advice Please - Lease Op with variable rate? - Posted by David (CA)

Posted by David (CA) on June 28, 2001 at 16:18:43:

This is my first deal. Seller called and “just wants out” of a rental he owns and his payments. It’s a variable rate loan. How do I structure a L/O deal to protect me if rates rise?

ARV: $195K
Needs: interior paint and carpet (1300 sq ft)
Owes: $194K
Payments: currently $1200 mo P&I (variable rate)
Fair Market Rent: $1100 mo

My Backdoor - sell on a L/O for $210K with $7000 down, payments of $1350 ($1200/mo rent plus $150/mo towards down payment for a rent credit of $300/mo)

Re: Advice Please - Lease Op with variable rate? - Posted by Matt B

Posted by Matt B on June 29, 2001 at 11:02:11:

This doesn’t really look like a decent deal. There are a few problems with it. Number one is the variable rate. Now you could simply write this up with your payment amount on the agreement, locking that payment amount in for you. However, you would need to impress on the seller that if the payment went up, they would have to cover the excess. This could be a HUGE headache to make your payment, then make sure that the owner makes up the difference.

Then you have the payment that is $100 above market rent. Now I have done a few like this because I realize that it is still possible to charge a little more for a lease option. However, this is still a problem to factor in.

You also have a house that needs work. (Paint and carpet) Again, I have done lease option deals like this and simply had either my buyer or seller make the necessary repairs. But there is more to consider here.

Finally, you have the purchase price. Again, I have done deals on houses with only $1,000 worth of equity, but there are other factors to consider here. Add up all the negatives, and it looks like they outweigh what could be put together as a good deal. Sorry, but put all that together, and I’d walk from this one.

questionable advice - Posted by Bryan H (ny)

Posted by Bryan H (ny) on June 29, 2001 at 01:08:15:

I’m still looking for a first deal too so I’m not sure you should trust my advice, but this seems like a “subject to” is more appropriate. To protect yourself you “assume” the existing variable and then finance to your buyer with a variable rate. As a first deal, I believe a “subject to” provides more security for you than a L/O since you are removed from the deal after closing with your buyer. You should also have the current owner making the payments until you have a buyer.

Also, this doesn’t seem like the best first deal to me with fair rent at $1100 and payments at $1200. Of course it doesn’t matter if it cashflows for you.

I welcome comments on this from anyone who knows better than me.