Re: L/O’s & Down - Posted by JPiper
Posted by JPiper on April 16, 1999 at 17:13:27:
Just a couple of comments.
A l/o deal doesn’t NECESSARILY require NO option consideration for you to have a profitable deal. But there’s a number of factors involved here. One of those factors is knowing your market?.meaning knowing what you can get from an optionee upon resale. Example: if you know you can get $5K upon your resale?.what difference does it make if you end up having to put up $2K? Particularly if the deal gives you a good cash flow over a long enough period of time.
It’s all about negotiation. I personally wouldn’t have a problem with putting some money upfront. But if I did so I would want something back for it?.perhaps not starting my payment for a few months?or perhaps a longer option period, more renewals, etc.
Another factor involved is how much is the down payment? What someone tells you they have to put down, versus what all the different possibilities for financing are, can be 2 different things. Example: there are 100% financing programs available for owner-occupants with good credit. Alternatively, FHA combined down payment and closing costs might approximate 6% of the price paid. Perhaps they have this already. Or perhaps they have a way to get it?like a car they can borrow against, or a relative who can gift it to them. Perhaps NOT receiving upfront money is a tradeoff for a higher monthly payment and immediate liquidity.
Part of this has to do with what your exit plan is. If your plan is to assign your l/o that’s different than if your plan is to sandwich yourself. The first creates only one profit center, the latter creates a possibility of 3.
The question you ask is not a simple question. Who says you HAVE to lease/option to begin with. Perhaps another strategy (like a subject to assumption with a trust) would fit better if they require some upfront money?.and perhaps this strategy would enable you to get more upfront money yourself.
My suggestion would be to not pigeonhole yourself into NO upfront money. Rather, find out ALL the facts concerning the seller, where they are going, what they think their financial requirement is, etc. Know the lending market inside and out?.so that you can know whether what they think they need, versus what they really need, match.