Posted by Ed Garcia on April 26, 2006 at 10:32:41:
Phil,
I appreciate what you?re attempting to do. You?re trying to get a ball park figure for an acceptable terms and conditions for a lease/option offer.
However it doesn?t work that way. If someone were to tell you how they would structure a hypothetical deal it could actually be a deal killer and not acceptable to your seller at all. The first thing you?ll need is of course a MOTIVATED SELLER.
No matter how motivated they are, a lease/option is going to be the last way that they?re going to want to do their deal. So you need to work into a lease/option scenario with them and tailor the deal to their needs that can be mutually beneficial for both of you.
I just went over a deal yesterday on 11 units that one of my students was wanting to purchase. The units have only 3 tenants and the seller is extremely motivated because of the vacancy. I showed her how to negotiate with the seller to convince the seller to do a lease/option. I then showed her how to display to the seller that within the lease/option that there will be payment increases as the units fill up and that rents will be assigned to seller until the option is executed. The reason for this is so the seller will adjust the payments to match the income as well as assure the seller that the buyer won?t be milking the rents.
Part of the sales pitch I had her give to the seller, is because the units have such a large vacancy, it makes it difficult for her or any potential buyer to secure financing. So if the seller will allow her to do a lease/option for a year. It will give the buyer the opportunity to fill up the units to eventually get competitive financing.
I?m sorry I?m not giving you the rule of thumb answer you want to hear, but there is no rule of thumb. It’s all negotiable and rightfully so. The best way for you to posture your negotiations is always with the attitude of, if I could, would you?
Ed Garcia