how do go about setting a sales price when purchase option investing?
for example, lets say I take over a house subject-to and then I have a tennant buyer lined up. and lets suppose that I bought the home for a Retail price of 100k. How do you determine how long to set your purchase option for and for what price. It’s really hard to say how much a home may appreciate in future and you don’t want to short your self.
Thats the risk you have to deal with in a lease option. Sometimes the buyers close knowing they will have a great equity position, espeically those during the beginning of the real estate boom…But hey, if the market slows more, then they may not have equity and have to walk away and lose all the money they gave you…So what happens…start over…but heck…you were smart, got 5% downpayment upfront and its non refundable and you were getting 200-300 a month over normal rental rates for cashflow…oh the buyer…he is renting eslewhere now…
so basically you just do you due diligence and try to set the option purchase price where you think the home will have appreciated to and hope that you’re on target?
If for example that side of town has been appreciating at 4% for the last 3 years and you anticipate that for the next 4 years that’s where you would set it?..
I know you can consult w/ realtors on this and appraisers…Is there any market valuation / data sites that you know of who for a nominal fee can research this?
thanks!
If for example that side of town has been appreciating at 4% for the last 3 years and you anticipate that for the next 4 years that’s where you would set it?..
If you really want the TB’s to exercise their option, you need to set the option price realistically. They’ll be getting conventional financing (usually) and if you set the price ridiculously high, no lender will finance the deal for them - especially in this day-n-age of esculating foreclosures.
Typically, you’ll need to really understand your market. If it’s hot and the 2-3yr period (or whatever the option period is set at) shows a trend of continuing then you need to adjust accordingly. If it was hot, but shows signs of weakeneing now, you may have to leave the option price alone. If it’s a cooling market … well … you get the idea.
If you don’t really care if they exercise their their option, you can set it at whatever you like (hypothetically speaking), although, you may not get too many offers selling a $250k house that’s only worth $100k.
I know someone in texas doing options on preconstruction homes…Puts TB in for 6months to 16months till they have good enough credit to buy…He sets the price at as open end sorta.
Ex…purchase price 150K…area appreciating at 5%, so in 12months at 5% $157500…
So his option price would be something like this…
$157500 or appraisal price which ever is higher at time of purchase…this way he is still selling for market value but not selling at a lose if market goes slow… If the home is worth less than 157500 or even 150000 he may want to keep it longer unless they come up with the D/P for the home b/c banks will not finaince more than appraisal price…