Sub 2 seems to be a great strategy for homeowners in trouble, however you are still going to need an exit strategy whether it be to sell outright (not in this market) or hold for 2-3 years with a L/O. Now my question is what can I typically charge as an option fee I’d like to put some $ in my pocket 3 mo. in reserve in case my T/B defaults?
There are dozens of strategies for this. The one I’m most fond of is to adjust it depending on the credit worthiness of the T/B. If the T/B has a good job and enough credit to get financing with only a little trouble, then a lower option payment - say 2x the monthly lease payment. This is because you want them in there because they will probably finance out relatively soon and you’ll get your cash out on the backend.
If their credit is complete garbage, then they likely won’t be able to finance and buy you out, so you need more of your profit upfront. Make it between 5x the lease payment up to 5% of the property sale value - the most you can get.
I typically look for 3 - 4% depending on the desirability of the home. I’m often offered 5 - 6% in exchange for a lower payment (I base the rent on posted mortgage rates, not rental rates, so they’re usually more than the T/B is used to paying.)
Thanks for the feedback guys, you see I live in Miami, FL and I have a homeowner in VA willing to give the deed, the dog, and her car if you know what I mean so as you can imagine I will be controlling a property thousands of miles away. I am kind of hesitant cuz of the distance, prop mgmt. comp may take most of my profits but it may be necessary if I want to make it work anyway here are the numbers.
- $230,000 approx value
- $165,000 loan bal.
- $1250/mo mort. pmt. nothing in arrears yet.
What do you guys think?