L/O's & Down - Posted by JHyre in Ohio

import · April 15, 1999, 7:37am

Posted by JHyre in Ohio on April 19, 1999 at 06:28:30:

Jim,

As always, I appreciate the sage advice. Spent some time last week with a mortgage broker…I was amazed at some of the things these people can do. I’ll be speaking with one of my prospects about their target replacement home in more detail…the broker is of course willing to work with anyone I bring to her. I believe this prospect is steadily warming to some sort of deal. I’ll keep my mind open & working re methodology.

Thanks again,

John Hyre

import · April 15, 1999, 7:37am

L/O’s & Down - Posted by JHyre in Ohio

Posted by JHyre in Ohio on April 15, 1999 at 07:37:16:

OK, I’ve called a number of FSBO’s to see if L/O can work for them & to get practice on the phone. Found several people who are “warm”- somewhat motivated and getting more so over time- BUT they want money out of house now for downpayment on another one. I obviously do not wish to provide their down unless I get an EXCELLENT deal- unlikely given that most so far have little equity. Any suggestions? Just follow up gently & see if the magic of time works on their need for a down? Any creative ways if they MUST have down (or at least think they must have it?).

John Hyre

import · April 16, 1999, 5:13pm

Re: L/O’s & Down - Posted by JPiper

Posted by JPiper on April 16, 1999 at 17:13:27:

John:

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.

JPiper

import · April 16, 1999, 6:24am

Thanks! - Posted by JHyre in Ohio

Posted by JHyre in Ohio on April 16, 1999 at 06:24:08:

I’ll get on it…thanks for the help everyone!

John Hyre

import · April 15, 1999, 9:07pm

Re: L/O’s & Down - Posted by Tyler

Posted by Tyler on April 15, 1999 at 21:07:43:

JHyre,

I think Sean had a great idea, and Jim was right on, but let me add this:

If the sellers want that much down, they’re NOT VERY MOTIVATED! As LeGrande would say…“move on!”

It’s really the motivated ones that you want to work with…otherwise, it’s like trying to put a square in a circle hole. You’ll keep on trying, but it’s tough to get very far. The motivated ones will fall right in…you don’t even have to push!

Good luck!

NT

import · April 15, 1999, 7:14pm

Re: L/O’s & Down - Posted by Russ Sims

Posted by Russ Sims on April 15, 1999 at 19:14:40:

Yeah, I’ve been running into this, too. What I’ve started doing is this: If there is really good profit on the back end and/or good positive cash flow, I tell the seller that I must be assured of some profit on the front end because there is no assurance of profit on the back end (if the T/B doesn’t excercise their option). Therefore I will require a down payment from my T/B. I will split this (the % is negotiable) with the seller and will pay only when I get paid. Note that this should be a last resort. But if the deal is good enough, why not?

If this doesn’t work, you can always try the ol’ “refinance and get cash out” line. If they don’t have enough equity to do this, then they shouldn’t be expecting anything down anyway. I’m signing a L/O tomorrow with a seller who did that very thing.But in his case the mortgage payments were simply too high for me. So I suggested he lower them with a refinance. He did it! Simply suggesting the refinace to him made me 10K or so. It works!

import · April 15, 1999, 10:02am

Prepaid Rent - Posted by Sean

Posted by Sean on April 15, 1999 at 10:02:38:

I have heard that some people offer a large initial payment provided it is classified as prepaid rent. Could you maybe give him 6 months of rent payments prepaid to help him buy a new home and then recoup it over the next 6-12 months?