Posted by John Behle on January 12, 1999 at 12:29:32:
I haven’t had a problem with it, but that doesn’t mean it couldn’t happen. I read Bronchick’s comment about above market rents, so that might be a problem. I’ve given tenants 50-100% of the option amount based on market rents. I don’t inflate it because it is an option. The lease and option are different, which helps enforce the two different rights (pros and cons to that).
The option is limited to a short time period and market conditions need to justify taking this overly generous route. Again, most of the tenants are not able to take advantage of the option later, so the generous offer doesn’t cost me. It does result in a wonderful tenant (very well SCREENED).
Posted by Michael (NM) on January 11, 1999 at 15:21:02:
Is there any way to structure a 100% rent credit so that it will all apply to the down payment? I have a seller who will go this route for the first 6 months. I’m looking at it for my residence, but I would like to get a conventional loan ASAP to decrease my monthly pmt.
Posted by John Behle on January 11, 1999 at 17:30:31:
You can structure any amount of the payment as a credit. If the seller is willing, go for it.
I’ve used that same formula in reverse as a property management tool. I give the tenant a lease option. Triple net - they pay all repairs. All - 100% - of their rent applies to the downpayment in 1-2 years.
THE CATCH?
It works as a great managment tool. The terms are not spelled out so they would have to pay cash or finance. Most tenants can’t pull it together when it comes time to exercise the option. In the meantime, they are fabulous tenants and I’m fine with them exercising the option.
Why? Because I leave the price as the appraised price at the time. I get the appreciation, minus the rent credit. It’s generous, but works well in an appreciating market and remember - most tenants don’t exercise the option and I have no management headaches.
It’s kind of like an equity share arrangement without all of the problems those can bring.
Posted by Kevin(OK) on January 12, 1999 at 10:14:25:
John,
Have you ever had a problem with giving that much of a rent credit? I read somewhere on this board that a person should try to keep the tenants equitable interest in a property as low as possible in case the tenant can’t exercise thier option and decide to take the landlord/optionor to court. Doesn’t giving the tenant such a large equitable interest allow the tenant a better case in court?