Comments on 1st L/O deal Please - Posted by GaryB-IN

Posted by randyOH on February 19, 2003 at 18:15:21:

What would you think about a land contract in this situation if the owner will not sign over the deed? Does an LC violate the DOS clause? I assume it does but I just wanted to get your thoughts.

Comments on 1st L/O deal Please - Posted by GaryB-IN

Posted by GaryB-IN on February 19, 2003 at 11:24:26:

I am ready to complete my first lease/option deal, and I am looking for comments on good and bad aspects of the deal.

Here goes:

Home appraised for $92,000

My option price is 75,000 (the owner’s current balance)

My downpayment is 0

My monthly payment is $600

House is a 4/1 in decent neighborhood of mostly homeowners.

I am signing up my tenant/buyer Friday.

Her option price is 89,000 within 12 months, or 92,000 within 24 months. I priced the house this way because after talking with a realtor I got the sense the house was over-appraised.

Her downpayment is 1,500

Her monthly payment is 695

I know the downpayment is lower than I would have liked, but 1,500 was the most I was offered by anyone except for a woman who never showed up.

Any comments are appreciated.


Re: Comments on 1st L/O deal Please - Posted by eric-fl

Posted by eric-fl on February 19, 2003 at 13:43:48:

Well, since you asked for comments:

Was there a particular reason you did not get house deeded over to you, vs. just simply taking it l/o? You now have a time limit you have to get it sold by, unless you negotiated an automatic option renewal. You’ve also given away a tax deduction to the original owner, allowing them to keep that, in spite of the fact that you’ll be doing all the work, and taking all the risk. Anticipating that perhaps the owner was wary of signing over the deed, it might have been possible to negotiate a conversion from l/o to deed transfer after a good payment history for something like 6-12 months. Also, you’re option price is too low, because it sounds like you were basing it on what the home is worth, today. Of course, your t/b’er cannot buy it today, especially not with only $1500 to put down. This is why the option price is typically higher than FMV, because it is the price of the sale in the future, not today, and historically, house prices tend to go up. The down payment is a little low, but is not that bad if that was in addition to the first month’s rent, as I’m hoping it was. And like you said, it’s what you were able to get, and something is usually better than nothing, which is what you could have by holding out for more. You probably would have done better with a 4/2 - a 4/1 is functionally obsolete. You could have offered a remodeling credit towards purchase price for the t/b to put in another bath, (many would), but of course that’s not an option if you are only on a lease/option yourself. Still though, $1500, plus about a hundred every month, and nice potential back end is nothing to sneer at, and it’s a deal, and it’s money. It all spends the same!

Be sure to keep after your t/b’er to cash you out, the back end is the worthwhile part of this deal. Tenants/buyers are still tenants, and so they will need a lot of hand-holding, and a little luck, to turn into an owner.

Re: Comments on 1st L/O deal Please - Posted by Aidan

Posted by Aidan on February 19, 2003 at 12:53:35:

sounds like a great deal! I’m also fairly new at this as i have only done one deal on a commercial property several years ago. How did you go about finding a buyer? also how do you ensure the owner will make his mortgage/LOC payments?

Good Luck!