Posted by Steve Heller on November 12, 2000 at 08:40:18:
Hope,
How do you explain loan amortization to TB on a lease option? Or is it a concern to them? Because evently over a number of years they should own the property, right?
Thanks,
Steve
Amount to charge on Lease Option versus Rental? - Posted by Steve Heller
Posted by Steve Heller on November 10, 2000 at 08:30:29:
Hi everyone,
I own a property that I am currently renting. I have had several tenant problems, mainly collecting rents (even though the property is in a desirable location). I am seriously considering lease optioning the property but I would like to get the same amount of rents as I am currently getting. If I run an amortization schedule there is around a $100 difference in what I want and what their payment would be. What do I call the $100? My expense for doing the lease option? Also any help on ad copy would be appreciated.
Thanks in advance!
Steve
Amount to charge on Lease Option versus Rental? - Posted by doug,ky
Posted by doug,ky on November 10, 2000 at 11:03:57:
Steve when you lease opion to your T/B the rent should increase. Typically, you should be receiving payments that match what the tenant buyers payments would be if they went down to the bank for a loan. Example: $100,000 house with 5% to 10% down with slow credit, you should be able to receive 10% to 11% interest on the balance. After all that’s what their payment will be if they exercise the option. The difference between your mortgage payment and rent received is your monthly profit. Do with it what you want to.
doug,ky
This is what we do - Posted by Hope(Fl)
Posted by Hope(Fl) on November 10, 2000 at 11:01:22:
I will tell you what I do when I L/O a house. I always try to get at least 2,500-5,000 up front, and NON REFUNDABLE option money. I do not base the tenants rent on any sort of amortization schedule, rather I charge fair market rent. I know there are many others on this board who charge quite a bit more than fair market value for rent when they are doing a lease option and then credit back some of the rent to the purchase price. Of course that makes more sense financially speaking, but every market is different, and where I live I would be sitting on the house forever!!So, bottom line, charge at least what you would if you were to rent the place, and if your area is at a premium, you may be able to get a much higher rent amount for the"privelege" of the l/o. The MOST important thing to focus on is the DOWN PAYMENT as that is REAL and is often the only"profit" you will ever seeLOL We have found that most of our l/o tenants never do excersize their option and forfeit their down payment BUT it always helps to pay for the REAL expenses of vacancy, ads and repairs. Also, we have found that we have gotten better"tenants" by l/o instead of just"renting. We have been doing this for years and it works a lot better for us that rentals did. It is also a great feeling when a l/o buys the house, although that does not happen as often as we would like.
I guess it depends… - Posted by Hope(Fl)
Posted by Hope(Fl) on November 10, 2000 at 13:54:49:
In our local real estate market, it is More expensive to RENT than to BUY. For example, on a 50,000 home, I can get approx 600 rent, yet if the tenant were able to buy, his payments would be approx. 365 per month P&I and about another 50 for taxes and insurance, so a total of about 415.00 per month (100% financing) So therefore, I would never use an amortization table when figuring rent in our area.