Help Please!!! - Posted by KC in NC

Posted by KC in NC on February 25, 2001 at 08:31:32:

Thank you very much Rick. The market is really slow here so I can use your first post to probably L/O the house I am living in now…
Don’t go far, I will try ro get some numbers in the next couple of days!!!

Help Please!!! - Posted by KC in NC

Posted by KC in NC on February 23, 2001 at 16:50:03:

Hello everyone!! I hope someone can help me with some advice. I would really like to present an offer on a house that is listed for about 275k. I am a teacher and my wife is a stay at home mom. so I know we could not qualify for a loan.( We do have a few rentals but I am not crazy about cashing out to come up with a hugh downpayment. It is that cash flow that allows my wife to be able to stay home with our 2 year old daughter)
I know for a fact the seller of this particular house has moved to another city and first tried to sell FSBO. The market is quite saturated around here and when the owner had no luck selling himself, He listed with a broker. My question is this. Should I present a lease option offer through the realtor or should I try to contact the out of town owners myself or even wait until the agreement between the broker and seller expires before I contact them?

Any advice would be greatly appreciated.
Thank You

Re: Help Please!!! - Posted by Bud Branstetter

Posted by Bud Branstetter on February 24, 2001 at 22:03:29:

I am going to speculate that you want this house for yourself. If you L/O it the owner will be able to depreciate it. But because you are a renter you can not deduct the taxes and and interest that you really pay. You also want the equity build up as the loan is payed down. And you want the appreciation. The ONLY vehicle I know that allows you to deduct interest and taxes while allowing the owner to depreciate is the PACtrust approach. All the benfits of home ownership. You need to find out about the existing mortgage just like it was suggested. It is likely that the owner wanted too much cash to owner finance. That can be solved too.

More Info Please - Posted by Charles Steed

Posted by Charles Steed on February 24, 2001 at 11:02:53:

My first of several questions, what are you trying to accomplish? What are your plans for this house if you were to get it? A house in the $275K range will require significant carrying costs if you were to rent or LO - at least $3000 per month. You say the market is quite saturated. So what makes you think you’ll do any better turning a profit with this than the present owner.

You say the house is listed for $275K. Is that below market? If so, how much? Apparantly, not enough or it would have been scooped. I don’t know how long you’ve been investing, but when starting it’s wise to drill where the oil is. What I mean is, stick with properties that people need and want. Most people can’t afford houses in the upper price ranges, so it makes sense to deal in homes that the majority of the market can afford. That’s not to say that you can’t make a killing with higher priced homes, just that it’s a specialty that takes some skill and practice.

It seems that you’ve established one of the criteria for an investor to consider attempting to control this house - the seller seems to be motivated. Now you need to figure out what you’d do with it if you were able to get it. BTW, there probably isn’t much incentive for a RE agent to want to see a LO deal go thru, how will they be paid?

Re: Help Please!!! - Posted by Rick(CA)

Posted by Rick(CA) on February 23, 2001 at 17:57:54:


Be courteous and make the offer through the broker. They are required by law to present all offers. Just be prepared for them wanting a check for about $500 earnest money.

If the broker is uncooperative, then you may want to go directly to the seller. The seller is the one who is responsible for paying the broker anyway. If you choose to wait, then the adage of “you snooze, you lose” may come into play.

Try to get a lease for as many years as you can talk him into.

Re: More Info Please - Posted by KC in NC

Posted by KC in NC on February 24, 2001 at 13:02:16:

Hi Charles!
Thanks for the reply. This particular house is for me and my family to live to live in. I was not going to buy it as an investment.

Tax value is 237K btw that is what they bought the house for in June of 1998. Then the owners finished the room over the garage and added a full bath there, stating that it can be used as a 5th br. Most 5 bedrooms in the hood are going for 300k. There were 6 houses listed and sold for the year 2000. Average time on the market was about 3 months. The prices above tax value of course took longer to sell than the ones that were priced below tax value. What do you think???

Re: Help Please!!! - Posted by KC in NC

Posted by KC in NC on February 23, 2001 at 20:52:26:

Thank-you Rick. When you say “try to get the lease for as many years as you can talk him into.” What are the advantages for me? Do I try to lock him in at the 275k for that period of time? Won’t he want to raise the price after so many years? I am very new to lease option and at this moment waiting for a home study course to arrive. After reading a couple of your other replies it sounds like your pretty knowlegeable on lease options. Do you think if I gave you a couple of scenarios you could analize them for me???
KC in NC

Re: More Info Please - Posted by Charles Steed

Posted by Charles Steed on February 24, 2001 at 14:18:50:

Tax assessed value is often well below market value so that may or may not come into play. If the comps are at $300K, why isn’t the place moving at $275K? Maybe the market’s slow. I’d still need to know how much the seller owes. I guess you’ve determined you can pay the monthly PITI, so that’s okay.

If you like the house it doesn’t matter what I think, it’s your decision. Again, I’d first find out how much the seller owes, and if that number represents a good deal, make an offer for about 3 percent more. The agent will howl cause it isn’t enough to cover the commission. Tell him that’s as high as you will go (of course you can always adjust this figure if you really want the house).

Another possibility is to offer a little more than the present loan balance and ask the seller to do a wrap. They’ll remain resposnible for the underlying financing. Theoretically, this could trigger the due on sale clause, but in almost 20 years I’ve yet to see it happen. Once the lender has accepted several payments, and after the title has changed hands, they’ve (the lender) set a precedent and it becomes hard to enforce the DOS. There are other methods such as buying subject to, and using land trusts, which you’ll find many posters on this board willing to share their expertise.
All of this is still shooting in the dark however, without knowing all the numbers. It’s likely that whatever happens the agent will hold out for his commission. Keep that in mind.

Re: Help Please!!! - Posted by Rick(CA)

Posted by Rick(CA) on February 25, 2001 at 01:26:48:


Sorry to post a couple days later. It’s always a good idea to try and get your lease option for several years from the seller. And yes, you want to try and lock them into the original selling price. Matt B. posted a very good article on the How To section about lease option selling points.

The advantage is equity buildup. The second advantage is getting a buyer in there and paying you for a market price of the home you’re getting for $275. Then, you have them (buyer) sign a 1 year option. If they don’t exercise, NEXT! Get another option, maybe raise the price and start again. Making more money in the process, equity is growing, you’re using the option money as a cushion against mortgage payment if you can’t get a tenant in fast, etc.

If your buyer does exercise, then you made money from option consideration, extra on monthly payments, and difference in your selling price versus your buying price. win/win/win.

Just remember that when you sell on an option that you have two contracts. The option to lease and a separate rental agreement so you can evict them for non-performance. Otherwise, a good lawyer will demonstrate that they have an equitable ownership right in the house. (Disclaimer: I’m not a lawyer, but I play one on TV. j/k)

Re: More Info Please - Posted by KC in NC

Posted by KC in NC on February 24, 2001 at 14:29:31:

Thanks Charles!

Can you be a little more specific with the wrap?

Addendum - Posted by Rick(CA)

Posted by Rick(CA) on February 25, 2001 at 01:34:18:


Forgot that you mentioned in your original post that it was for your personal residence. So, you can take my prior post and apply it for your other investments.

If you lease it from the owner for a set price, they are agreeing to sell it to you at that price. They can’t come back and raise the price down the road if the contract is spelled out. That’s why there’s usually an option consideration amount. It’s like “insurance” in blackjack.

As far as the realtors commission, I kinda liked the way Carleton Sheets does it. “You know, normally I work with a buyers agent for this paperwork. I can always bring them into the deal and you two would have to split the commission anyway…”. But, again, it’s the seller paying the commission.

As Charles stated, get the real numbers and let us know so we can make a better decision. If you are paying real close to retail, you’re probably paying too much.

Re: Still more Info Please - Posted by Charles Steed

Posted by Charles Steed on February 24, 2001 at 14:52:50:

Everything is based on the loan bal. How much is it…if you don’t know, you need to find out.