Re: Lease option to buy…Why? - Posted by Greg (Omaha)
Posted by Greg (Omaha) on January 10, 2004 at 07:46:17:
Probably the best way understand is to look at a real life example.
A couple of months ago I lease/optioned a property to a tenant/buyer family. They had recently moved from out of state and due to a problem w/ a business they owned they’d had to declare Ch 13 bankruptcy. They had a rental lined up but on their way here the landlord died and so they were now living in a hotel.
They saw the property at my open house on a Sunday and took possession that Wednesday (Benefit #1 - Fast Possession).
Their money out of pocket included 1.25 months security deposit (refundable), 1st month’s rent and 3.5% of the option price as option consideration (Benefit #2 - Low Down, No Bank Qualifying). In our state you can charge .25 month’s if you allow pets which most rentals do not allow. I do because I want them to think like owners (additional benefit since they had 2 small dogs).
We also agreed that 10% of each of their rental payments that I receive on time will count as option consideration (Benefit #3 - Building Equity faster then on a 30 year loan amortization).
During their time in the property, any improvements they make they can receive the equity for by exercising their option (Benefit #4 - Sweat Equity Opportunity).
I will say that this is my preferred exit strategy but not so I can take the house back (it does happen). I don’t believe in setting up my system for people to fail. If they do what they say (pay me on time), I will do everything I can to help my tenant/buyers benefit including helping them get financing, taking back seller financing, helping them sell the property to obtain their equity, allowing them to carry the equity they’ve built-up to another property I have available, etc.
While I don’t do this for charity, I have found I can make more money in the long run by treating others how I would like to be treated if the situation was reversed.
Hope this helps.
P.S. This was an older couple and not familiar with some of the “new-fangled” technology available to them so I took them to their bank and helped them get auto Bill Pay setup for their rent payment (they had no idea you could do that). This way they will always receive the 10% on time payment benefit. Just another mutually beneficial service I offer.