Lease Option early payoff - Posted by Steve-WA

Posted by Steve-WA on October 11, 2003 at 11:04:26:

this is no problem! Just looking for alternate ways to calculate. The hit that I actually am taking is releasing them from their lease, as you mentioned. I do not have to do that, but it is my good faith contribution to allow them to pay this off.

Thanks Dan

Lease Option early payoff - Posted by Steve-WA

Posted by Steve-WA on October 11, 2003 at 01:58:50:

I have a lease optionee who asked to exercise early . Numbers are like this:

8500 sales price
2 yr lease @ 150 per; 100 of which is credited toward option price (I know I know - too much)

At the end of 2 years, 8500-2400 = option price of 6100.

I have calculated, through a haze of chianti, 2 possible ways to do this:

Remaining months on 24 month lease 16
Monthly lease payment x 150
Total 2400 owed by terms of lease

Option price + 6100
Total payoff 8500

Less 14% discount for early payoff - 1200 (release of half of remaining lease obligation)
Total payoff 7300

OR

Release from obligation of remaining months on 24 month lease 16 (x 150) = 2400
Remaining months rent credit 1600
Option price + 6100
Total payoff = 7700

Obviously, I want to lean toward the extra 400 payoff method, but it also seems to make the most sense. This is a first, with someone requesting a L/O early exercise, and I told her that I would cut the price - I am doing this by negating part of the lease obligation.

Opinions please? Especially from those who have done this for a L/O.

TIA

s

Re: Lease Option early payoff - Posted by Dan - GA

Posted by Dan - GA on October 11, 2003 at 10:24:56:

Steve:
You’re using smoke and mirrors to solve a very easy problem. You apparently didn’t have an early payoff penalty, and you weren’t using any type of an amortized credit on the lease payment.
The Original Purchase price was $8500
You credited $100/mo x 8 months -$800
They owe you $7700
That seems like the # you wanted to collect. Don’t even mention a discount for early payoff. If they want a discount, mention the $50 x 16 month’s that your loosing and act like you’re taking a big hit.
Based on the Time Value of Money, take the payoff and do another deal. As my friends back in NY would say
"Such a problem, I should have."

Dan