The people I know here (many) who are doing l/o’s basically don’t screen people at all. Anyone qualifies. About a quarter to a third never cash out. That means they put three to four people in the house, on average, before one qualifies. Of course, it should be obvious that the first one could cash you out as well.
I posted this same scenario a couple months back. Never got any hard numbers from anyone, as I don’t think anyone cares too much. TB leaves, they leave their option $$, and allow you to collect some more. Not a bad setup, provided the place is in good shape. The only real thing I got from talking to people around the country was that the better you screen, the more people will cash out.
I’m doing some analysis for my new properties, and trying to determine if I should take advantage of the low 3/1 ARM rates, or the low 30 year rates. I’ve just started converting previous rentals to lease options, so I don’t have any history on how many tenant/buyers actually exercise the option. I’m sure it’s different from area to area, but I need an idea so I can decide between a short term ARM product (so I can bank on the cash flow now), or the safe 30 year (still have cash flow) but at least I’ll lock in these unbelievable rates.
To all of those L/O experts…how many of your tb’s exercise the option?
Your help is MUCH appreciated. I’m working in the Seattle area.
Re: L/O Experts: How many convert to purchase? - Posted by Dee-Texas
Posted by Dee-Texas on April 20, 2003 at 20:26:56:
Hello Dianna,
Most all of my rentals are SFH and have been converted to L/O’s. Lisa Moren has higher end properties than I do. I would think that the higher end properties might cash out sooner. (She’s awsome to hear if you get a chance)
I always go for the low fixed rate spread over a long period. JUST in case you get in a bind for money you have the great rates and low payments.
IF you get cashed out that’s great also, but most DON’T. I screen to get the best but I know going in they have bad credit. I get more for my houses up front plus the option consideration and they do the maintence.To me it’s the best of both worlds and sometimes I do get cashed out but I don’t plan on it. I like the cashflow.
You can always pay more toward principle if you want to pay your loan off quicker.
Three years isn’t enough time to see if your going to be able to turn the house if it doesn’t sell the first time.
Just my opinion.
Best $uccess,
Dee-Texas
I personally don’t have enough experience to comment, but Lisa Moren, who spoke at our last REI meeting (in San Diego) says 25%. Her properties are in Colorado.