How can I set a payment structure for a lease option?

9 Replies

Are there any resources that one can use in order to "design" a payment structure on a "lease option"?

I am trying to do one with a motivated buyer on a out-of-state property I own which needs quite a bit of work.

I have found some online resources however they seem to be better suited for terms of 5, 10 or more years. I am trying to do something similar but the property is MUCH CHEAPER which means I can't really do 5 years.. even 3 years seems like a lot given that the sale price is 11k.. 

An agent prepared something for me but it seems like much is missing after taking a look at what he sent me.. 28 months term. $805 dollars interest over the term, taxes are to be paid...

This is the structure of what the agent sent me. Needless to say I feel I am not really making much being very accommodating to that buyer.

How would this work in this case?  Any ideas?

Review with your CPA. If you can't crunch the numbers you shouldn't do the deal.

@Patrick Boutin , it doesn't appear that your agent structured a lease and option transaction.  This looks more like a purchase structure where all payments are applied to interest and the purchase price of the property.  

@Bill Walston , yes that does seem to be the case. Would a normally structured lease and option transaction be more like a rent payment with SOME of the payment going towards the purchase price?

To be honest with you, the agreement leaves MUCH to be desired. It seemed very poorly written and with a lot of things missing so that made me worry. When I saw the agreement, I wasn't sure what to say and started posting in here to see what other people thought.

@Patrick Boutin , the residential lease has a fixed rental payment for the lease term.  The rent is the rent.  In my deals NONE of the rent applies to the purchase price.  The option (a separate document) gives the tenant the right to purchase the property during the option period.  The non-refundable lease option fee IS applied to the purchase if the optionee exercises the option.

It looks as though your realtor friend proposed a seller-financed deal.  What he provided is simply how the deal would pay out.  What don't you like about the proposal?  How would YOU like the deal (purchase price, interest rate, payments) structured?

Don't ever do a lease option with a term of more than or equal to 36 months, it allows the lender to call the loan due as per the Garn St. Germain act of 1982

 If you disclosed to us the facts

Current after repair value, amount of repairs,  current after repair value, amount of repairs, market rent, current financing with payoff amount and type of loan, etc,  it would be easier to talk to you about this 

It seems like it's an installment sale where you pay installments over time, 

It would help for you to disclose the state the property is in 

Different states have different laws as to repossessing a property if the buyer defaults on an installment sale

@Patrick Boutin

@Brian Gibbons I am not sure what you mean by "it allows the lender to call the loan due as per the Garn St. Germain act of 1982" as I own the property free and clear.

The property is very modest, located in Greenfield, Indiana. It's a small 800 square feet home in a 7,200 square feet size lot. As I said it needs a lot of work as the previous owner lost it at tax sale and failed to redeem the property therefore didn't maintain it much. That plus mid-western winters have taken a toll.

I know that a property several homes down in the same street sold for 70k however that property is a bit larger. 1,100 sq ft. That means the property I am inquiring about could possibly sell for close to 55k or maybe a bit more based on that and a few other properties which sold within 0.5 mile radius and in the last 5-6 months.

I don't know if I should go thru with this person and do the lease option or instead try to find a cash buyer who may be interested in flipping it. Any thoughts?

As a seller, cash now will always be better than the same money later. Less pain and less risk, especially if one has never done an LO before.

Is the question sell for $11k cash now or deal with a tenant and funky agreement from a realtor lol for 3 years for $11k in the end?

Take the cash and get your sanity back. It's less than most cars and not worth the hassle!

accidemtal double post (?)

@Patrick Boutin , why not just do a seller finance and skip the renting and Dodd Frank headache?

Take as large a non-refundable deposit as possible - min $2.5k and finance the rest for 2-3yrs.

The risk is they may not be able to pay and you may have to foreclose, but look into deed in lieu in the property's state.

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