what are my options on my lease option ?

General Real Estate Investing
1

I thought it sounded good - I decided to secure the contract and live on the property for a year and research the property before buying.

I did alot of talking and secured a 2 home property with an amazing 7 acre spread on a 1 year lease option, nothing down, $800 a month $129,000 to purchase at the end of the year.

The property needed alot of cleaning and alot of work I am finding more each day. Most are minor issues, but they tally up to alot of ugly.

6 months into the option - I am :banghead

I started my research at the court house and looked up a survey of the property.

The neighbors own my driveway !

The latest tax assessment is about HALF of what my option price is. Hrmm … :shocked (of course the assessment was done while the trash was still terrible)

The guy I signed the lease option with - does not own it or have any ties to the property that I could find. The deed shows the owner is a “trustee”. Ok … whats this and is my contract even legal if I did exorcise my option? :deal

My option is for 129,000
Tax assessment is 65,900 (done 1 year ago)
I can’t do comps on the place - there have not been any propertyes on the market latly. If any - nothing to compare except this one … sold in 2001 for $65,000 needing MUCH more then it does now.

Am I getting taking for a ride here?

What do I need to know - to still create a win/win and hopefully profit on this investment - I have 6 months of work and payments in and think the place has HUGE potential.

I realize my first fault was jumping in the contract THEN doing my homework on it. And I don’t want to admit that my gut feeling about it was - way off.

Seller claims before some damages were done - both homes were rented at $650 each. I secured them at $800 for both - thus a positive cash flow potential of $500.

financing this home is near impossible. Two homes, needs work to reach a decent appraisal. Seller expects ME to do repairs and updates to get financed on.

I guess I feel like I am :flush - ANY advice appreciated.

2

do you know the local tax assessment value vs FMV %? ie. in Ontario where i live the government assess for 100% of fair market value. with average variation of 97% - 101% of FMV. so if the property is in Ontario, no way can a 65k go up to 129k

i heard in some states, tax assessment is only 70% or 30% of FMV, and therefore a house worth 129k could be assessed at 65k tax value. if your tax assessment value is supposed to be 100% of FMV, then 65k vs 129k is way off…especially when you have to do the clean up yourself.

the contract cooooould be legal. If the person that you are dealing with actually set up a trust with original owner. but i am not fit to comment on that. read previous posts i believe someone mentioned a trust of a sort for lease option.

3

You need to have your lawyer go over all of the documents and figure out where you stand. Also, forget the tax assesment value…it means nothing in regard to the FMV. The assessment might be based on it being in crappy condition not in good condition, might be only a percentage of the actual value but who knows what percentage, etc. Get a realtor to do comps for you or get it appraised.

4

Rich, you have to consider his situation. He mentioned that he cant do comps because there were no sales recently. Of course a lawyer review the contract plus an appraisal would do. In fact almost all problems can be solved with a decent lawyer and an appraisal. but thats few hundred bucks minimum. Not all people are willing, or can afford to do something like that, especially just starting out.
i find that doing a bunch of search on internet of the local area is the cheapest way to get a general idea.

5

Can’t come up with a few hundred bucks? Are you kidding? Unless he’s homeless and living in a cardboard box he can come up with a few hundred bucks. We’re not talking millions of dollars here. I also find it hard to believe at least somewhat reasonable comps can’t be done, its impossible that nothing has sold in any given area. Maybe not many but something has sold. How do you think appraisers work? They use comps. I don’t suspect they make them appear from thin air.

6

Unless the optionor intentionally commited fraud, or the contracts are invalid for some reason, the optionee is behind the eight ball on this one.

7

lol well…
you see, i didn’t say he cant come up with the money. Is he willing or not. Suppose as a beginner investor you have 3000 in the bank account to invest, spend 500$ just to find out what is going on, on a deal that he already got into, he is using up more than 15% of his funds.
There is not much point for him, in this case, to find out what is the exact value of the property. search for the assessment rule for the local government (or company) on internet, it will say how they assess the value, and the margin of error, you can get an idea of the house value range, without spend anything easily. he optioned the house “as is”, because he is doing the fix up himself. so 65k compare with 129k is nowhere near correct. granted if you are buying a new property, this should not be the way to go. by all means, appraise new properties.

8

I just got back from the auditors office and no one can find the second house on any of the tax assessment or descriptions. BUT it is clearly been here for 10 years and the assessment is 1 year old.

Yes, a few hundred bucks is a little hard right now just to “know” my position.

I’m novice but so willing to learn. I want to make a go with investing - to help raise my 4 sons.

Creative options were my only (known) hope to start. I am self employed in marketing, single, and went back to college for a masters degree in business. The student loans are deferred - but the debt to credit ratio is killing my credit scores. PLUS conventional lending wouldn’t help me on a two home property.

I guess I am the “underdog” - embarrassed to put it all out like that. But willing to earn my way up to the top.

9

Like Rich said, the tax assessed value means nothing in
regards to FMV.

Maybe you can decide the FMV.
I’m mean, you do have the option to purchase, right?

I know you stated your option price is $129k.
Figure out an approx. monthly payment on $129k for
30 yrs @ 8%(a lil’ high), which comes out to $946.56 per
month.
How much does/will the other unit rent for?
Figure how much you want to pay per month, then
go from there.

This is a backwards way to give you a simple
idea on how to figure out how much you’re willing to pay.
The true market value of a property is really what someone is willing
to pay anyway.

Good luck.

10

JasonAL, if you find out how your tax is assessed, you will see that it ALWAYS has something to do with FMV. not necessarily equivalent, but you can put them in an equation. Of course a formal appraisal will be a lot more accurate.

And no offense, but i think by asking yourself how much you would pay to rent a place, then determine the FMV is just absurd.

11

Using the assessment for anything other than a pure guess is crazy, it doesn’t necessarily mean you can even guess that well. Even if you have a general idea how they figure out the calculation the numbers they start off with may be very skewed.

12

When you did a title search, what did it say? You mentioned “trustee.” Curious if this thing is in some sort of land trust or living trust.

Ed

13

If the guy you got it from isn’t the recorded owner it looks like he might have gotten it Sub2 and the property is in a land trust. Your lease payments are covering the mortgage payments he took over plus a profit. Lease option appealed to him since he didn’t want to clean the place up. Call him up and ask him.

That looks like a possible scenario to me from what I gathered. I would look over your contract in depth and if you indeed have the “option” to purchase than you may be able to back out citing that it doesn’t fit your investment needs anymore.

Again depending on what your contract says you may be able to rent the place for the remainder of your term, if it is not your principle residence. I would also call 4 of the closest realtors closest to you and try to get a value of your place. I fit turns out being worth considerably more than your option price you’ve got a good deal. Just remember that you’ve got the option which means you control the property.

14

destiny911,

I don’t understand how you are planning on making money with this “investment”. Are you planning to sell it? Rent it?

Here are my thoughts:

Your option price is WAY too high if this property is worth $130,000 or less, whether you are planning to sell or rent.

As a rental, this is a bad deal if the rents are anywhere near $650 each. This is a negative cash flow property. Properties that are going to be rentals generally need to be purchased at a BIG discount. This appears to be a retail deal (at best).

Regardless of anything else, you MUST have legal access to this property if you are going to buy it. Is there an easement allowing you to use the driveway? Can you install another driveway somewhere else on the property.

The good thing about a lease-option is that you don’t have to buy the property. If the numbers don’t work, you can simply give the property back at the end of your 1-year lease. In the mean-time, you’ve had a place to live for $800 per month and you’ve learned something.

Good Luck,

Mike