Happy Holidays everyone! I sure hope that you are surrounded by those that matter most to you!
I was wondering if there is perhaps a formula that one can use to quickly assess the viability of doing a leas-option deal. For example, rental rates as compared to home pricing.
If, for example, the market rents are averaging $900/mo, and you find a home that you can purchase for $200,000, I would assume that this would be a no-deal considering the fact that a $180,000 mortgage for 30 years at 6% would be $1,079, not including taxes, insurance, etc…
I am thinking that if I am placing a tenant buyer with the goal of purchasing the property, this deal wouldn’t work unless i could somehow get the payments to be much less.
Anyway, I just wanted to see if you would be willing to share some speedy due diligence formulas that you have learned or discovered along your journey.
Thank you for your time and Happy Holidays again!!
Hey Doug!!
You’d like to have the rental rates be at least CLOSE to what the PITI will be fore the tenant buyer when they purchase.
So, if you get set the monthly payment close to say… .9% or so of the price, then you are in good shape.
$100,000 x .009 = $900 a month.
The buyer’s payment will be close to the PITI when they finance.
If you are in an area where rental rates are say .5%, you will find it tough to market a LO for what the payment needs to be at.
Keep in mind, if you set the payment too low, the lender could say it’s payment shock when the T/B goes to finance and they get turned down.
Pilot, that is a helpful formula to keep in mind. Obviously every situation is different and warrants specifics unique to each deal, but a general formula is helpful to quickly check a deal for viability. the last thing I want to do is have an offer accepted that later turns out I can’t complete because of my own error. Hey, i’m human and I’m fallible.