So I’ve been reading and studying hours and hours a day, but I can’t seem to find an answer for this one question: what is the motivation for an end buyer to buy on a lease option?
Example:
18 Month lease option
Present home value--------------------$200,000
Option payment @5%----------------- $10,000
Expected appreciation @ 4%---------$12,200
Purchase price to buyer---------------$222,200
Why would a buyer pay me $10,000 today, then sign an option agreement for $220,200 within 18 months? Many people say that its because the buyer has bad credit and needs to repair it, thus giving him 18 months to do so. So why wouldn’t a buyer just rent for another 18 months, then go buy a house 18 months later and save themselves $10,000 in an option payment?
Hey there caborder…
I’ll just throw in my 2 cents and a few what if’s…
What if the appreciation ends up being 8% instead of 4%?
What if the person has plenty of money but because they are relocating their business to a new area, their lender told them that it might not be a good idea to have a new business loan and a new house mortgage at the same time yet they need a house and don’t want to move all of their belongings twice?
What if the landlord/seller says that they will take care of all the maintenance during the 18 months instead of the tenant/buyer?
What if the tenant/buyer has 8 dogs and nobody will strictly “rent” to them so they decide to lease to own the house instead?
What if the property needs some work and after putting in a $10,000 new kitchen, landscaping the back yard for $6000, update the bathrooms for $10,000…the house, after 18 months, ends up appraising for $280,000?
What if the tenant/buyers purchase directly from the landlord/seller thus saving the possible $12,000-$14,000 commission the seller would have had to increase the listing price to cover paying the 6%-7% commission?
And finally, have you ever been in a position where you needed a lease-to-own house? People’s motivation can be very powerful.
Just some food for thought.
Darin
Plus the 10,000 and any rent credit will apply to the purchase price.
Downpayment for a new mortgage is done or close. They have 18 months to see if they like it or walk. Buyer is not obligated to buy but seller is obligated to sell. Maybe too, if they get forced to relocate then they have nothing to sell. Herbster
Darin thanks for all the great reasons, never even thought of a single one of those. And Herbster thanks for the insght too.
Ssshhh…never even imagined that hhiinvesting discussed. This was very very helpful. Thanks to Herbster too.
Also, some lenders will consider payment history of 12 months on a lease option, and enable the buyer to “refinance” the property as opposed to having to qualify on a brand new loan. Refinancing is always easier then getting a brand new loan. If you sell on a lease option and WANT them to actually buy you out, then YOU make it a point of keeping track of their payments to you (copy each and every check or money order they give you and keep it in a file). Most buyers won’t do this…don’t leave it up to them to get your deal done!
Jason
Jason, I agree with your last part about keeping good records, I even reccomend keeping the envelope because its post marked. The first part though I don’t agree with. Its a Lease with an Option, no loan is involved so no refinance just a new loan and the buyer will have to qualify. Herbster