I don’t like it, but that doesn’t mean it can’t be done. I would use it as a last resort though. I’ve never been asked about appreciation on an owners property. All of my deals have a price of the current payoff of the mortgage.
My thought is that maybe a seller wasn’t motivated enough if this is what they wanted. On the other hand, I probably would do a deal where the payoff was $105k on a $105k FMV, with the right terms, like no payments for 3 months, etc. Part of taking care of the owners problem, the house, for a year is to reap the benefits for your hard work and attention to this house.
Lease Option Advice: Is speculation smart - Posted by vern(MD/VA/DC)
Posted by vern(MD/VA/DC) on December 17, 2002 at 08:07:53:
When negotiating a purchase price from an Owner in a L/O deal, is it common practice or smart to agree on purchase price based on speculation/appreciation?
Every option I have seen is like EXAMPLE1, where you agree upon a static(non-changing) purchase price when you sign the deal.
EXAMPLE1: You agree upon a purchase price of $100K and that’s the purchase price regardless if the option is excersized in the first year or the second year.
EXAMPLE2:
With a 1 year deal, with an option for a second year, you agree to buy a house valued at $100K today for $105K at the end of year 1 or $110K at the end of year 2 and in turn you would tell the tenant buyer that the purchase option price would be $120K at the end of year 1 or $125K at the end of year 2
Speculation is always risky, but real estate is a speculative investment. Doesn’t it seem like EXAMPLE 2 would help to motivate an owner?