Posted by B.L.Renfrow on March 21, 2000 at 11:08:45:
Guess I was clear as the mud on a rainy day! Actually, I was AGREEING with your position: as the buyer in a sandwich L/O, I don’t use rent credits. If there’s significant equity, I want the deed. I was simply speculating about a hypothetical situation in which using rent credit, with me as the buyer, MIGHT offer a benefit by lowering my option price.
Brian
L/O - Loan Balance vs. Rent Credits - Posted by TRandle
Posted by TRandle on March 21, 2000 at 08:51:46:
It seems to me that most folks here advocate the use of rent credits when acting as the T/B when doing a sandwich L/O. Why?
I haven’t done many, but I have made a few offers here and there, and no owner has ever balked at my strike price of their loan balance. Is this just because I’m not finding any L/O candidates with decent equity? If there’s good equity, why would I not want to own now?
I understand the benefits of offering credits to my T/B, but I don’t understand why I would want to offer a fixed amount for my purchase price, and then turn around and ask for rent credits. What am I missing here? Thanks…
Re: L/O - Loan Balance vs. Rent Credits - Posted by B.L.Renfrow
Posted by B.L.Renfrow on March 21, 2000 at 09:42:42:
Hi Tim,
Like you, most of my sandwich L/Os set my purchase price at the seller’s loan balance at the time of closing, and my monthly rent payments are the same as the seller’s mortgage payments (insurance and taxes may or may not be included, depending on the deal). I generally don’t include rent credits on my payments. However, these are typically deals in which the seller has little or no equity and isn’t looking for any cash out at the end.
I could see including a provision for rent credit if the seller had some equity they were unwilling to give up or if the only way they would do the deal is with a higher purchase price OR monthly payment than I really wanted to offer. If the deal made sense otherwise, then I might be willing to bump up either the purchase price or monthly payment, while including a rent credit provision to effectively get some of it back at closing.
However, I ALWAYS include rent credit for my T/Bers, usually $100 per month. Don’t know whether the evidence really supports it, but my gut feeling is that the rent credit encourages both timely payment and exercise of the option, since the T/Ber perceives they are getting a “discount” from the agreed-upon purchase price.
Brian (NY)
PS: How did you make out with that pre-foreclosure? Or was that Kelly’s deal?
Re: L/O - Loan Balance vs. Rent Credits - Posted by TRandle
Posted by TRandle on March 21, 2000 at 10:38:02:
BR,
I understand your logic regarding the L/O and maybe I just haven’t been exposed to the appropriate circumstances yet, but what I see in your example is a lack of motivation on the seller’s part. Either there’s a chunk of equity, and therefore, I’m going to do what I can to actually own the property, or there’s not much equity, and I do a L/O to protect my downside. I guess I’ll run across the situation you described at some point, but right now, I just don’t see it.
The pre-foreclosure that Kel (with Steph’s help) was working from Atlanta was going to be Kel’s first deal, but we bailed once we got good numbers from the lender. She’s got another one working right now, so we’ll see. Hope all is well with you…