Lease with option to buy. - Posted by Juliet

Posted by Bruce Lawson on July 29, 2006 at 20:37:29:

Hi Juliet,

Do you have the buyer also? If the seller is your client why not present them with the Lease Option as the offer. You can do the amortzation schedule on your local MLS or have a local lender create it. This should be a win-win-win situation everyone gets what they want including you as the selling agent.


Bruce Lawson

Lease with option to buy. - Posted by Juliet

Posted by Juliet on July 29, 2006 at 18:54:25:

I have someone who has found a property and because their credit score is below 500 they want an investor to buy the property and lease otion to them at most $1,200 per month for about three years. they have $3,000 for down payment. I am new in real estate investing ,can anybody take this up and give me a referral fee or show me how to go about this… The FMV of the property is $135k and has been in the market since March. Per my client the seller might take $125k.
thanks. Juliet

Re: Lease with option to buy. - Posted by Roderick

Posted by Roderick on August 16, 2006 at 19:55:55:

I maybe able to help the buyers. Please email me for more details.

Re: Lease with option to buy. - Posted by Thomas M.

Posted by Thomas M. on August 03, 2006 at 09:29:54:

Should probably walk away from this one Juliet for several reasons.
Your 500 score person is offering little more than any renter, and offering a lot more complexity and risk to the Investor, so why would an Investor do it?

There’s never more than one thing wrong with any property that’s not sold within 10 weeks. The price. So it’s not really worth $135K in today’s market.
So he hasn’t found a killer deal. I’m finding better in the MLS through realtors.

The 3,000 is more like first and last months payments of a renter, not a buyer. Generally more than 25% is expected to compensate for the risk of someone with dubious credit.

His low score also brings to question whether he’ll even make the 2nd payment. So he might not even be a good tenant. The Investor might likely have to go through the time and expense of eviction, which is vague on a lease option contract. Legally, it’s more complex than a rental. It could cost him far more than his profit, never mind the daily aggravation for months, or possibly years.

$3,000 barely covers the closing costs. So now the Investor has to come up with any down payment, or have killer credit to get 100% financing, which is expensive.

So assume the Investor finds a program that allows 10% down, and puts up $13K, financing $122K, the Investors loan payments are approx. $700 / mo. fixed for 3 yrs. Then add taxes and insurance, etc. What if this 500 guy can’t buy it in 3 years? Now the Investor has to go through the expense of a refi, or take an adjustable roller coaster, probably heading higher than today’s rates. Or try to sell in a market probably slower than today’s.

Ther’s also a good chance prices will lower for the next 10 years or so. So the Inv. will see depreciation until then.

Even if all works as planned, the Investor’s best case is to make approx. $11k over 3 years on his $13K. Not bad, but he can do better elsewhere.

Would you do and risk all this if you were the Investor?

Keep learning.
Good luck.

Re: Lease with option to buy. - Posted by Patrick S. Lawson

Posted by Patrick S. Lawson on July 29, 2006 at 21:26:58:

The payment they are willing to make is unrealistic in relation to the sales price. As a rule of thumb If they want an investor to step in and take the risk for them they should expect the purchase price to be no more than 80 times the monthly payment.

In this case they should expect to pay about $1500/month or look at a property closer to 100K.