Lease Purchase Free & Clear Home - Posted by TCR_Va

Real Estate Investing
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Posted by Dee-Texas on October 28, 2002 at 08:32:52:

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Lease Purchase Free & Clear Home - Posted by TCR_Va

Posted by TCR_Va on October 28, 2002 at 02:03:28:

As a few of you may already know, my wife and I are about to embark in real estate investing through lease purchasing. I have been thoroughly reading Conti & Finkel’s books. I’ve completed them almost twice but have yet to find a particular answer to a couple of questions.

  1. If I come across a motivated seller who is selling their house that is owned free-and-clear, what negotiated amount of monthly payment should be from me, the investor, to the original seller?

Should the monthly rent be about 85% of fair market rent or simply what their original monthly mortgage payment was?

  1. Should I require my tenant buyers to have renter’s insurance? And what about pets?
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Re: Lease Purchase Free & Clear Home - Posted by Dave B

Posted by Dave B on October 28, 2002 at 07:17:34:

Unlike Joe, I do happen across a motivated seller with a free and clear property every now and then. In a case like that, I usually propose some sort of owner financing, steeply discounted cash price or land contract instead of a lease option. As Joe said though, if you do a lease option on these, give as low a payment as possible.

I once lease optioned a free and clear property that had been inherited by the seller who called me. When I was trying to think of what to offer them a month, I thought to myself that I would just start off by insulting them! I figured that I would just offer a very low payment and negotiate up from there. This was a $96,000 house and I offered a payment of $200 a month! Amazingly, the seller didn’t flinch for a second and simply said, “OK”. Since this seller had no outgoing payment, the payment I offered was all profit to them any way!

As far as renter’s insurance, check with your attorney to see if you can legally require them to get it. However, I always recommend it to my tenant/buyers and explain to them why. Their possessions are not covered by my insurance, so it is in their best interest to insure their things.

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Re: Lease Purchase Free & Clear Home - Posted by JoeKaiser

Posted by JoeKaiser on October 28, 2002 at 06:39:20:

I’m trying to recall the last motivated seller I ran in to who had a free and clear house . . . and I can’t. Motivation happens for all kinds of reasons, but a pending foreclosure is number one in my book. Motivation happens when you can’t make the payments. Free and clear is rarely going to present the sort of opportunity you’re looking for, I’d imagine.

If you’re talking about what your lease payments to the owner should be, they should be as little as possible. A percentage of the fair market rent should be the end result, but I wouldn’t be going in with a percentage in mind. I’d negotiate for the absolute minimum amount possible and see where that gets me. The amount of their original mortgage payment will have absolutely no bearing on that figure.

Renter’s insurance is not something I can legally require, but it’s probably not a bad idea to recommend it. Pets are something you do have a say in. I refuse to accept any pets in a multi unit property and try to rent to people without pets in general. In a tough rental market though, I’ll consider it with a hefty deposit, but will still restrict both the number and the size of the pet. Company policy is “no pets,” but sometimes ya gotta do what ya gotta do.

Joe

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Re: Lease Purchase Free & Clear Home - Posted by JoeKaiser

Posted by JoeKaiser on October 28, 2002 at 07:39:11:

Dave, you know you just violated the “he who mentions a number first, loses” rule. Good for you. A $96k house for $200 a month? I love it.

I don’t think of it as “insulting,” though. I think more in terms of knocking the wind out of them so we’re starting with, shall we say, reduced expectations.

Joe

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Re: Lease Purchase Free & Clear Home - Posted by Dave B

Posted by Dave B on October 28, 2002 at 07:47:16:

Dangit, you’re right Joe! I did violate that rule! Actually, I used that EXACT same technique just yesterday to get a deal on a junker for about $6,000 less than I was going to offer! It was TOUGH, too! I asked the woman, “If I were to offer you all cash and close quickly, what is the LEAST you could accept?” (I think that’s a LeGrand line.)

There was SILENCE on the other end of the phone for a good 30 seconds. Do you know that 30 seconds feels like 5 minutes when there is SILENCE on the other end of the phone? I started to think she had hung up on me, but I would not make a peep!

Good point on the analysis of “insulting”. I do a lot of “expectation lowering” in my negotiations!