Lease-purchase (by Hoosier [IN]) Jun 17, 2018 10:12 AM
Lease-purchase (by BRAD 20,000 [IN]) Jun 17, 2018 1:02 PM
Lease-purchase (by Hoosier [IN]) Jun 17, 2018 4:55 PM
Lease-purchase (by NC INVESTOR [NC]) Jun 17, 2018 5:28 PM
Lease-purchase (by NC INVESTOR [NC]) Jun 17, 2018 5:51 PM
Lease-purchase (by BRAD 20,000 [IN]) Jun 17, 2018 9:00 PM
Lease-purchase (by S i d [MO]) Jun 18, 2018 5:40 AM
Lease-purchase (by Hoosier [IN]) Jun 18, 2018 9:39 PM
Lease-purchase (by razorback_tim [AR]) Jun 19, 2018 2:31 AM
Lease-purchase (by Hoosier [IN]) Jun 23, 2018 10:28 AM
Lease-purchase (by Hoosier [IN]) Posted on: Jun 17, 2018 10:12 AM Message:
Have you ever done a lease-purchase option for a tenant who has already been living in your property but wants to buy it? If so, can you bullet point some of the key things? Do you charge more, less, or the same rent? Let’s say I was charging $800/mo rent, and they approach me about lease-purchase option. Would I charge $800 and give $100 rent credit? Or would you typically charge more than original rent and let that be the rent credit? What about option fee…how much should that be for let’s say a $80,000 house? I assume they are responsible for all maintenance and repairs afterwards? What about taxes...do they pay directly? Or do they pay me and I pay to make sure they get paid?
I assume nearly everything is negotiable but I'm looking for some common terms.
--99.92.xxx.xxx |
Lease-purchase (by BRAD 20,000 [IN]) Posted on: Jun 17, 2018 1:02 PM Message:
Hoosier,
RTO makes me money and FREEDOM!!! We have done approx 1,000 of these. Laws differ in other states.
Indiana law allows us to designate a Non-Refundable Option Fee and separates it from a deposit. I can keep the Non-Refundable Option Fee. Imagine keeping all of what used to be "deposit" money.
The Lease and the Option To Purchase must be separate documents which do not relate to each other. You canNOT use one form such as a Lease/Purchase Agreement.
I can do a simple eviction with the lease.
I can still charge them for unpaid rent, fees, and repairs.
My lease is written to make them responsible for maintenance, thus reducing my workload.
Do NOT give the res credit of any kind on a monthly plan because that gives them EQUITY which means they OWN part of the house and you do not own 100%. The law sees them as partial OWNERS with Rights of Ownership, not leasees. To remove them you must foreclose (months and $4-5000 legal fees) and possibly refund the equity they accumulated.
The IRS can consider the house SOLD and require you to pay taxes on the sale of the entire house. And the govt's Dodd-Frank law says you are not capable of calculating and offering a deal like this to another person.
BRAD
--68.50.xxx.xxx |
Lease-purchase (by Hoosier [IN]) Posted on: Jun 17, 2018 4:55 PM Message:
Thanks Brad. Do you agree on price at time of the option? Or do you get appraisal later? How long do you leave the option open? If/when they exercise, do you get funds all at once and therefore have to pay capital gains tax? --99.92.xxx.xxx |
Lease-purchase (by NC INVESTOR [NC]) Posted on: Jun 17, 2018 5:28 PM Message:
There have been several discussions here on this topic over the past few months.
Reading your state laws are critical since it definitely varies by state.
I did RTO before the housing crash and stopped for various reasons. This year I considered doing one for a long term tenant until I read our state laws.
In 2011 NC changed the laws on all lease options. The ones for residential properties are brutal. Even though the lease is the primary contract the option places a greater burden on an eviction action with the courts requiring foreclosure instead of eviction depending upon the length of time they've lived there , the amount of rent credits (equity) they have in their accounts plus and number of other issues. The bottom line is that if the court requires foreclosure over eviction they can stay rent free for 12 to 24 months or until they exhaust all of the legal filings allowed by your state foreclosure laws.
This will vary by state but I recommend you start with learning your states rules and regs before commiting to the tenant. If you do decide to proceed I also highly recommend that you have a real estate attorney write both your lease and the lease option since your lease will be affected by the option.
--71.75.xx.xx |
Lease-purchase (by NC INVESTOR [NC]) Posted on: Jun 17, 2018 5:51 PM Message:
Again this will be dictated by local requirements. Generally you will have to set the price at the time of the option. However, I have seen some where they give a range and the high end of the range cannot be exceeded. Just remember that if they exercise the option they will require a mortgage so the property will need to appraise. If the price exceeds the amount qualify for some banks will not allow them to pay the difference and depending on their DTI they may also not allow a seller held 2nd mtg. So be realistic when setting the price.This isn't the lottery.
The RTO's I've seen are generally for 2 to 3 years.
There must be an option fee paid at the signing for the option to be binding. The amount is whatever you want. Some accept the equivalent of a single SD others want several thousand. The options fees are yours to keep upon signing the contract. However, most options treat the option fee as the down payment to be applied when they exercise the option. So while you pocket the option fee immediately it will be deducted from the sale price at closing.
When they exercise their option it is treated like any other home sale. They get their financing, go to closing and you transfer ownership to them. Any gains you make on the property are taxable for cap gains and depreciation recapture.
--71.75.xx.xx |
Lease-purchase (by BRAD 20,000 [IN]) Posted on: Jun 17, 2018 9:00 PM Message:
Hoosier,
Price: no. The Option gives them first right of refusal.
I used to post a price but eventually a know-it-all brother in law would convince them the fair market price was too high so they’d leave, even tho it was irrelevant because they could not get a loan.
Option is for 3 years.
Appraisal: I get my own appraisal IF they can get a loan. The bank appraisal seems to match my appraisal because mine came first.
Please note, out of 1,000 RTOs only 3 have bought the house. We keep repeating. That’s a lot of option fee in my pocket.
Income tax on option fee can be delayed until they use it or move out.
IF they buy it’s a normal sale. I get full cash and pay cap gains on that and they fully own the house.
BRAD
--68.50.xxx.xxx |
Lease-purchase (by S i d [MO]) Posted on: Jun 18, 2018 5:40 AM Message:
I do not feel comfy doing lease options.... for the exact reason Brad mentioned: the abysmal failure rate of these kinds of deals. Btw, he and I have hashed this out in private and in depth, and it is simply not for me. So realize this is not a "bash Brad" response. He and I are friends.
That said, my view on these kinds of deals...
When I sell a house, I sell a house, period. 3 out of 1,000 successes doesn't work for me. It may for you and others.
All I encourage is that you realize what is really going to happen when you "sell" a house via lease-option. If you are okay how these deals work in reality, then go forth and conquer. If not, then find someone who will really qualify and be able to purchase the home. Odds are, your tenant is NOT that person. What are the odds? Let's see 3 / 1000 = 0.003 chance of success. Less than 1/3 of 1%.
Might as well encourage them to play black jack at the casino to earn money for a house. At least there the odds are only slightly in the house's favor. ;-)
Many renters have a "dream" of becoming homeowners. Reality tells us this dream is more like a fantasy. There's nothing illegal yet about people being dumb with their money: like I mentioned earlier, gambling is legal in many states even though folks know for a fact it is a long-term losing prospect because the odds are always in the house's favor. C'est la vie. But I am not going to open up a casino and participate in them being dumb.
Everyone's gotta be comfy with what they are doing. So, if you're considering doing Lease option, explore in depth what you're doing, examine what are the probable outcomes for you (you get a large chunk of money) and the tenant buyer (they walk away with considerably lighter pockets after 1-3 years) and ask yourself, "Am I comfy with this?"
What you don't want to happen is you get into the middle of a deal and find yourself questioning the outcomes after you already have a substantial financial gain in the outcome. Money on the line will cloud your thinking. Do it now, before you have a vested interest in answering in a way that doesn't take both sides into equal consideration. --173.19.x.xxx |
Lease-purchase (by Hoosier [IN]) Posted on: Jun 18, 2018 9:39 PM Message:
ok good info here...I have taken good notes. thank you --99.92.xxx.xxx |
Lease-purchase (by razorback_tim [AR]) Posted on: Jun 19, 2018 2:31 AM Message:
I'm a big fan of a lease with an option to purchase.
You can have a success rate closer to 50% if you require a larger option fee up front and are selective about who you enter into the agreement with. Find a local mortgage broker who has a history of working with borrowers over time to get their credit score up so they can qualify and send your tenant-buyers to them as soon as the ink is dry.
Have a conversation with this broker before you enter into a lease-option. Find out what, if anything, is being allowed in terms of additional monthly credit. An idea here is that instead of allowing part of the rent to go toward the purchase, keep charging the $800 rent under the lease, but require additional monthly payment of $100-200 additional non-refundable option premium. If you are collecting rent on the 1st, collect this on the 15th. This solidifies the separation of the lease and the option. --70.178.x.xx |
Lease-purchase (by Hoosier [IN]) Posted on: Jun 23, 2018 10:28 AM Message:
Someone mentioned that you cannot use a lease/option document, that the two must be separate...why is this? Is this codified in the statutes? If so, can you tell me which statute?
Thanks --99.92.xxx.xxx |
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