Posted by Carmen on April 29, 1999 at 09:18:52:
I’m not an expert on L/O either, but I do see two things:
You would want to sell the house at the FMV of the future date, not today’s prices. In any case, you can charge a little more than FMV because it is a L/O - you’re helping someone out here.
You do not need to “save” the $500/month. You do need to show that you are “crediting” that amount at closing (that means that, if you sell the house for $165K, you can show that they have a “credit” with you for $12K, so the amount you would be receiving from their bank at the time of close would be $165 - $12 = $153. It all comes out at the end - you don’t walk into closing with a $12K check; you walk out with $12K less.
The buyer’s bank will not consider FMV - they will consider purchase price, so the “down payment” will be on the sale price of the home. If you sell for $165K, they would show 7% down (12/165 = .07)
One reason you could do this is to get the house sold and be able to move quickly. You also would collect a non-refundable “option consideration” at the beginning of the L/O (on that price house, I would say a minimum of $5-10K). If your “tenant/buyers” do not close, you get the house back - and get to keep all of the option consideration and you can now try to do it again-for more money, of course, because the house will have appreciated. Also, you really should be collecting “rents” a little above market (because you are crediting a portion, and because you are helping someone out), and definitely enought to cover all your costs. The spread between your costs and your rent would be another reason to do this.
I’m sure there are many ways to make sure that all of this is documented and done right, and I’ll wait for the pros to get to the nitty gritty!