Re: L/O: Owner Wants A Piece Of Appreciation Action- Ideas? - Posted by Scott (AK)
Posted by Scott (AK) on May 24, 2000 at 11:38:14:
The good thing about L/O’s is they allow you as a buyer to be flexible also.
With a home in that pric range, if the 10% per year continues, the equity can be a lot of money upwards of over $80K before closing costs. With that type of profit I think one can be flexible IF the seller is willing to assume some of the risks also.
I would make sure MY profit was figured into the deal first. I would base my buying price on a fixed price and then offer the seller an "equity split " AFTER I get my profit. But I would only offer the split on the second or third year.
Lets say (just for numbers sake) you are to buy at $250K after one year, and you sell at $280K. I would make ALL the first years profit my own.
On the second year you structure your contract to say you buy at $250K + a split of the profit after you make yours (i.e. your buyers price that year is $310K, you buy for $250K…$310K - $250K = $60K. "OK Mr Seller, I get the first $40K and we “equity split” the other $20K 50/50…end result you get $50K the seller gets his $250K + $10 for his half of the $20K = $260K)
Then figure the third year the same way just adjust the numbers.
Also, this situation would be contingent on the continuation of the appreciation. If you want to get real nitty gritty start basing the buying prices on the rate of appreciation and sell on a price “based on appreciation but at least a solid figure”
NOW…any good negotiator knows when a seller makes a request of you, they MUST give something in return. I would attempt to push the burden of some of the risk onto the seller by making it contingent on finding a T/B or something. Also you might ask for a lower monthly payment if they have any room to work in that area.
So, as you can see, there is 1001 different ways to work the deal, but manageing the risk is number one. Make the seller bear some also, he can’t get everything he wants, if he does he’s unmotivated and you should move on.
I’d tend to get a little flexible on the equity split if the seller woould flex on the monthly. Give me my profit now and we’ll structure the deal so your profit fits into the “MAYBE” catagory.
It’s just a situation that shows, not one contract will fit every single situation and you need to be savy enough to word yours so you can be a little flexible in your deals. It’s just a numbers game where you have to learn to put your thoughts on a paper that binds it all together.
Hope this isn’t TOO complicated, and I hope I expressed myself so you can understand.