How can lease option purchasers get approval? - Posted by Mike Schilleman

Posted by JohnBoy on December 01, 2000 at 24:01:53:

You should work with a GOOD mortgage broker to see what the tenant/buyer will need to do in order to qualify in a year or what ever time you lease to them. If they have a fair chance of being able to get financed down the road “IF” they perform on their end, then you will have done everything you could to give them every opportunity to be able to get financing later on after they done everything they were supposed to do!

But no matter what you do to help them, it will be up to them to perform. You can’t hold their hands for them. Also, some people just may decide they no longer want to buy the property and choose to walk away when the lease is up.

This is why you should require a 60 day written notice in the contract that the tenant must give you to inform you of their intentions whether to exercise the option or not. Then you can start marketing for a new tenant 60 days before the other tenant’s lease is up and have someone already lined up to take the property.

How can lease option purchasers get approval? - Posted by Mike Schilleman

Posted by Mike Schilleman on November 30, 2000 at 22:53:07:

I have a number of houses (9) that I purchased a little over a year ago. I have approx 10% equity in each and all are under 1 year lease option. The problem is my payments and PMI make the cash flow a serious problem. Most of my optionees would purchase the property, but they cannot get financing and therefore I’m still stuck with what was not a real good investment on my part. I make three times the return on a few mobile homes that I bought and resold. This seems to be much easier and a lot less headaches. Any suggestions would be appreciated.

Re: How can lease option purchasers get approval? - Posted by JohnBoy

Posted by JohnBoy on November 30, 2000 at 23:52:57:

What’s the problem with the cash flow? Are your tenant/buyers paying you less than what your total payments are or you’re just not making enough cash flow off these?

If your tenant/buyers are paying less than what your total payments are, this could be a potential problem right there! The one problem you and the tenant/buyer may run into is that they will also have to qualify for a higher payment than what they’re already paying in rent. Not only would there payment be higher based on your payment amount, but even higher than your payment if they will have to finance more than what your loan amount is and we know that they will need to get up to 10% above what you owe already.

I’m assuming you own these properties since you mentioned your PMI and payments make the cash flow a serious problem. What about YOU financing them instead? Sell on a wrap to them at a higher interest rate than what you pay and create the cash flow you need. If they can’t afford those payments, then how would they get a loan since their payments would be higher anyway?

more qestions? - Posted by mike

Posted by mike on November 30, 2000 at 23:44:45:

seems to be a not uncommon problem, I have not done any L/Os yet but I am wondering now if they should not get pre-qualified for the commitment they will undertake at the end of the lease agreement.
Just wondering if that could be a solution so we don’t get stuck with payments and properties we would rather have leased?
looking for a learning curve here, as I said I haven’t done one yet