F_T_S
-
NONE, In fact, I have absolutely no idea what I’m talking about and I strongly suggest that you NOT read the rest of this post. ;D
-
I am NOT the man, There are people in this business that have forgotten more than I will ever know.
That said, you have to understand how the DEAL is structured. To have a true Lease/Purchase DEAL you must have a Seller and a Buyer with you in the middle. From an investor’s standpoint, unless you have a contract to lease purchase from the MOTIVATED seller and a contract for lease purchase with a credit troubled buyer you don’t have a deal. You will notice that I keep mentioning the 288 page ebook, I strongly suggest that anyone who is considering lease options read this book first as a BARE minimum.
I’m not sure I understand your next 2 questions “and in what market can some one really pay over and beyond mortgage as a portion of the contract!”, “do you buy or sell lease options if both, which do you preffer?”
I will try to start with the second question. To actually structure a Lease option, you are doing both. Ideally, you will be leasing from the MOTIVATED seller for up to 6 years at his current mortgage payment with the option to buy at the end of the lease for present value (in this example the home is currently worth $200,000). You would then find a tenant/buyer to occupy the residence. This Tenant:
-
Is usually someone that has some scar on their credit (ie. Bankruptcy, Forclosure) in their distant past that won’t be “erased” from their credit reports for 1, 2 or more years and prevents them from qualifying for a conventional mortgage at this time.
-
Has had a reversal of fortune since their credit “event” that allows them to afford a home such as the one that you are offering.
-
Has a substantial down payment (which you will refer to as an option fee and credit towards the purchase of the home ONLY if they exercise their option to buy), in other words they have to “put their money where their mouth is”. This option fee is non-refundable and is what gives them credability as a serious buyer.
Now, what does the tenant/buyer get out of this?
-
He gets to move into the house that he will eventually own. Allowing him to provide stability for his family.
-
He will get to purchase the home in say 5 years at a discount of FUTURE value (ie. $243,000 instead of the projected worth of $255,000 based on a 5% appreciation rate.) giving him instant equity when he purchases the home.
I will elaborate on this because I think this addresses one of your questions.
You are setting a price today that the buyer can take advantage of in 5 years. The advantage to the buyer is that , in this example, you are setting the future value based on a modest appreciation of 4% per year. The average appreciation in your area could be much higher, 8% for example. In which case the home that he now has locked in for $243,000 could conceivably be worth as much as $294,000 the day he closes on it. This would give him a whopping $51,000 in equity the day he buys it from you.
In answer to your question (I think), In ANY market you can get some one to pay “beyond mortgage” (I assume you really mean Market value), because by the time they buy the house they will actually be paying LESS than Market value.
The First thing to understand, is that this strategy relies less on market conditions (although you should always focus on markets that have higher than average appreciation rates IMHO) and more on your ability to find the right kind of seller and buyer.
I think that’s log winded enough,
I hope it helps