Posted by Heather -Tx on April 29, 2003 at 15:34:39:
Please read and learn more before you try to do this.
I have a few questions. How can she not afford 1250/month, but she CAN afford 40K Down and for an option consideration at that.
In answer to your first question if she buys, you would use that money to pay off your Lender, and keep whatever is left over for your equity. Or if you do sell Rent TO Own , you could take the payments and pay them monthly YOURSELF to your lender, never rely on the seller to do this, if they get behind it’s your credit they are messing with if the loan is still in your name. And you get the 375+/- a month for your own pocket.
As to question 2 and 3… I still don’t see how she can only afford 600/month but can pay 40K Down. Unless she came into some nice money and knows she can’t trust herself to manage it wisely.
Let’s see what the more experienced investors say though, I am still new myself.
I have a Rent to Own Condo. Price $149k. $1250/month. $150/month rent credit. I owe $111k. My positive cash flow would be $375/month. I have a possible tenant/buyer that can only afford around $600/month BUT is willing to put down $40k option money. I would have negative cash flow of $275/month or $3300/year.
Questions:
The 40k is more equity than I have in the condo. If she buys I guess my lender will come after me for the difference of her price and what is owed?
Do I eat the loss because I am getting a nice payday upfront?
Sounds like a deal if the money is for real…make sure the certified check clears your account before you give them possession or keys…I agree with Heather and need to follow up on that.
You found a tenant/buyer willing to enter into an agreement.
Buyer has $40k in cash.
Buyer can only afford $600 per month.
I only wrote the above to make sure I understood your post as another in this thread assumed it was a sandwich lease situation.
Sell it to the T/B for $155k ($149k + $6k mortgage spread), $40k non-refundable option consideration, 2 year option, no rent credits, $600 per month. Put $6k away for a rainy day to cover the spread/difference each month or make sure you can cash flow the missing $275 per month from other income if you want to spend that $6k needed for the monthly mortgage payment difference.
For your questions;
Your lender will not come after you for a L/O at this time. You are keeping the contract under 3 years by making it 2 years. You will pay the lender when (if) your T/B does exercise the option and cashes you out.
Yes, eat the loss on the monthly spread. You have 2 choices with this, either pay the extra $275 from your own cash flow and income; or put $6k in the bank to cover those payments during the next 2 years.
No. She can afford $600 and you can afford to give it to her so she doesn’t drop that $40k into someone else’s lap.
Good: $40k in your pocket now as non-refundable option consideration. Bad: You have to convince the buyer it is a good deal for them to give you $40k upfront now with the possibility of owning the condo within the next 2 years.
If I am reading your post correctly, you have a balance due of 111k to the seller. Why not refi now, put 30k down (TB’s money) at 6% for 30 years your payment is 486.00 per month m/l. Then explain to her that 149k less 40k = 654.00 per month x 30 years @6%. If she cannot afford that, then L/O her for 2years and have her refi or adjust her purchase price to make it work. Either way you get a 10k payday plu 120.00 month cashflow.