Dilemma with lease/option closing. Advice Please! - Posted by Craig

Posted by qstaff on August 18, 2003 at 20:40:42:

I had a situation where the tenant put his stuff in storage in the actual house. This cut down on costs considerably. He left–his stuff stayed in the dining room for a month. He went over to his girlfirends or something.

Dilemma with lease/option closing. Advice Please! - Posted by Craig

Posted by Craig on August 18, 2003 at 13:16:12:

Here’s the long and short of it:

Doing a sandwich lease/option with a 3/2/2 townhome that has very little margin. Have been renting the home to tenant/buyers for about 10 months, but renters notified me a while back they will be moving out in Oct (end of lease term) due to a job transfer out of state. I found a couple who want to purchase the home outright and we have a closing date set for Sept 27 - one month before my current renter’s lease is up.

The problem is this - the buyers are so sketchy about purchasing their first home, and they are hanging on by a thread as it stands. Thinking my current tenant would be ok with moving out a month before his contract ends, I offered him $1000 of his non-refundable option fee. Not so. He said he would need close to $3000 (all of his up-front option fee) to go through the trouble of putting stuff in storage and finding another place to rent for 1 month until he moves.

My dilemma is it took soooo long to find a good tenant/buyer in the first place, and only by the grace of God did I find buyers to purchase this place in Sept, so I really want to get this property off my hands. If I delay the closing until the end of Oct, the new buyers will have to get a new rate lock (rates just shot up recently) so that would not fly. I’m thinking of offering the tenant $2000 to move at the end of Sept and he can put stuff in storage and live in an extended stay hotel or something.

FYI - I’m looking at margin of about $4500 if I give the tenant $2000. The major risk I’m considering is if I give the tenant $2k to move out Sept 30th and the new buyers are unable to close on the house, then I would be out $2k + $1250/mo mortgage pmt until I find another tenant! Not a good situation. Is there any way I can mitigate this risk?

Any suggestions you have would be greatly appreciated!

Re: Dilemma with lease/option closing. - Posted by Ken (Fl)

Posted by Ken (Fl) on August 18, 2003 at 15:37:03:

I don’t really know if this can be done but…
Can you close as is scheduled with the understanding that the home is rented for 1 month. You will gladly give $1250.00 to the new owner for their inconvenience.
This way you only give what you get from the tennant. Express to the new owner how nice it would be to have $1250.00 to get started on furnishings or moving costs. If the numbers are right it may even pay their first mortgage payment.

God Bless

Re: Dilemma with lease/option - Posted by Russ Sims

Posted by Russ Sims on August 18, 2003 at 14:01:38:

One idea would be to let your tenant move out according to his plans. Tell the seller that your sorry for the delay, but that if they lose their interest rate lock and wind up with a higher rate because of it, you’ll pay the fee to buy the rate back down to where it was. Of course you’d limit your contribution to, say, $2,000 or whatever your comfortable with. This way, you wont have to pay your tenant anything to move out early and depending on what rates do, you may not have to pay any fee to the buyers to buy their rate down. Just an idea…

Re: Dilemma with lease/option - Posted by Craig

Posted by Craig on August 18, 2003 at 14:07:56:

Good thinking! Thanks for the feedback!

Re: Dilemma with lease/option - Posted by James (fl)

Posted by James (fl) on August 18, 2003 at 19:11:28:

Depending on what rate they got before, $2K might not even come close to buying the rate back to where it was a month ago.
Make sure they know you will only contribute said amount, and that it may not get them their rate back before it ends up costing you a LOT!@