L/O Question? Need clarification before tommorrow. - Posted by Jim IL

Posted by Mark (SDCA) on April 06, 1999 at 11:00:44:

One way to avoid this is to put a 90 day clause in the LO with your tenant/buyer. That way they must give you 90 days notice if they intend to exercise the option. No notice = start running ads.

L/O Question? Need clarification before tommorrow. - Posted by Jim IL

Posted by Jim IL on April 05, 1999 at 23:40:53:

Hello all,
I finished Ron Legrands L/O module over the last few days, and today had many contacts with prospective sellers. (first day of ad too, YAY!! it works!!)
Two in particular that have verbally agreed to L/O. (we will be signing tommorrow, one is out of state, and needs me to fax the contract to her workplace in the a.m., the other needs his wife to sign as well, and she had class tonight. And “yes” I talked with her too)
So, so far so good!
But, I have a question that relates to the other end of my deals.
Here is a scenario:

My option price:$100,000 (two years)
No deposit
Monthly payment (rent):$875.00

My tenant buyers price: $118,000 (also two years)
(I think that price, we may go higher)
Deposit: $5,000.00 to $8,000.00
Monthly rent payment: $1,100.00
Monthly payment toward downpayment:$250.00

Now, how does this work?
Does the monthly downpayment money simply get subtracted from the final sale price to my Tenant/buyer?

ie: They pay me :$118,000, minus $200/month
So they need to get from the bank, $113,200.00 at the time of the option?

I think this is right, but my wife who is almost complete with the Legrand course says I’m wrong.
I just want to make sure the numbers are all correct BEFORE I write this contract.

Thanks in advance,
Jim IL.

Re: L/O Question? Need clarification before tommorrow. - Posted by Steve Heller

Posted by Steve Heller on April 06, 1999 at 19:28:38:

Hi Jim,

I would like to know what ad you ran to get your deals so quickly.

Steve Heller
Tulsa, OK

Re: L/O Question? Need clarification before tommorrow. - Posted by Kevin(OK)

Posted by Kevin(OK) on April 06, 1999 at 09:16:47:

Also, you need to put down “option consideration” money as well, even if it is only $1.


Re: L/O Question? Need clarification before tommorrow. - Posted by Tracy

Posted by Tracy on April 06, 1999 at 02:18:31:

Why are you leasing to your tenant/buyer for the same period of time that you are leasing from your seller? The way I understand it is that if they wait until the very end of their lease to decide not to buy, then you have no time left to get a new buyer in, or very little time to buy yourself.

What ad did you run that got results so quickly?

Re: L/O Question? Need clarification before tommorrow. - Posted by JohnBoy

Posted by JohnBoy on April 06, 1999 at 24:10:05:

Your option price is for $100k. If you l/o it for $118k and get $8k down as option consideration and give another $200 per month in rent credits, then the balance due from your tenant/buyer in 2 years will be as follows:

$118k - $8k option consideration = $110k - $4800 rent credits = $105,200 balance due IF they exercise the option. If you only get the $5k down up front then the balance due would be $108,200.

So to answer your question, yes, the monthly “RENT CREDIT” gets subtracted from the purchase price IF they exercise the option. AND the “non-refundable option consideration” gets deducted from the sales price also IF they exercise the option. Don’t refer to it as “Down Payment”. It isn’t a down payment, it’s only a rent credit that gets applied to the option price IF they buy the property. The same with the option consideration. It’s NOT a down payment. It’s consideration for you taking the property off the market for a certain period of time and locking in a predetermined sales price to the tenant/buyer at a future date. For doing this, they are paying you a non-refundable fee to tie up the property.

What happens if the property went way up in value? Who gets that equity? Your tenant/buyer does IF they exercise their option. What happens if the property goes way down in value by the time their lease and option expires? YOU get stuck with a property that’s worth LESS than what it was worth 2 years ago! Your tenant/buyer gets to walk away because they only had an option to buy, not an obligation to buy. So isn’t that worth something for tying up a property for a year or two?? That’s why it’s considered as “Option Consideration” and NOT a down payment. You could be forced to give the down payment back if they didn’t exercise the option. After all, if they don’t actually buy the property, then how could one be forced into giving up a down payment on something they’re not buying?? Use the term “Option Consideration” and “Rent Credit” to limit your liability more should the tenant/buyer decide to walk away and start screaming refund on their money paid.