Question about Rent Credits on a L/O - Posted by Brian M. Powers(MI)

import · July 18, 2001, 2:47am

Posted by Brian M. Powers(MI) on July 18, 2001 at 15:25:06:

Hi Michael. I didn’t mean I would apply it toward
their down payment to me. I meant when they went to
get a loan from their lender, and told the lender they
were paying $95K for this prop, but already paid me
$3k down and another $450 per mo. credited toward the
purchase price, I am assuming the lender will want to
see some proof that they actually were paying $450
that was being taken off the purchase price and thus
using it as part of the down payment…does this make
any sense?
Thanks for your help!
BMP

import · July 18, 2001, 2:47am

Posted by Brian M. Powers(MI) on July 18, 2001 at 02:47:23:

Lets say I offer the T/B a 50% match for credit toward purchase price for any rent above the standard rent on his L/O. So if he pays an extra $300 per mo. I will credit $450 toward the purchase price. What’s the advantage to me to doing this? I am giving up $150/mo or $1800 over the 12 month agreement…do i bump up the price by at least $1800, say from $95K to $97K to compensate myself?

Also a year down the road when he goes to get financing, his lender is going to want to see some proof that this actually was being legitimately applied towrd the down payment. Do I escrow these payments and stamp them as Earnest Money in order to show this proof to the T/B’s lender?

Thanks!
BMP

import · July 18, 2001, 11:33am

Re: Question about Rent Credits on a L/O - Posted by Michael

Posted by Michael on July 18, 2001 at 11:33:46:

Brian,

Giving a rent credit is only an inducement to your tenant buyers, plus it can give you a little more cashflow from month to month.
If you offer a rent credit, have it apply to the purchase price when they buy, not to their downpayment. Unless you are willing to come up with that amount at closing.

Michael, KY.

import · July 18, 2001, 5:00pm

appraisal of fair market rents - Posted by Alex Gurevich, Tx

Posted by Alex Gurevich, Tx on July 18, 2001 at 17:00:46:

If you are too generous with giving tenants credits towards their equity, you’ll probably get caught and that extra credit will be disallowed.

“Equity” tenants build during your L/O will have to be supported by payments proven with separate cancelled checks for rent and equity, as well as your paperwork reflecting same. In case of excessive or even questionable credits, lenders typically will send an appraiser to get a survey of the FMRents. The appraiser will come up with the FMR figure. Anything above that would be allowed as true credit towards the down payment. Anything below that won’t, and you’ll have to give your tenants back those extra credits in the form of purchase price reduction or closing costs you pay for them.