non refundable option fee ---- set price or " that's exactly was I was looking for" - Posted by chris

Posted by chris on May 29, 1999 at 11:28:16:

the fact that , although I’m living in FL now , I hail from the land of BIG government ( the peoples republic of New York ) & I’m always looking over my shoulder for a bureaucrat and/or a bloodsucking lawer. Thanx for the input.

non refundable option fee ---- set price or " that’s exactly was I was looking for" - Posted by chris

Posted by chris on May 28, 1999 at 01:27:49:

There are guru / insrtuctors that propose not putting price specific information in L/O classifieds looking for tennant / buyers. The idea here is to extract as much up front out of the potential tennant / buyer. It’s the old " he who speaks first loses" sort of thing. So if the potential t/b asks what the financial particulars are re: how much down , how much per month - the investor might say " well how much do you have ". If the investor hears a satisfactory or even relatively large # , he might sat “that’s exactly what I was looking for”. Sounds good to the wheeler - dealer side of me, but upon further thought , wouldn’t the individual that was quoted $5000.00 say he/she was discriminated against when some other prospective t/b was told 3500.00 will do the trick? Fair housing trouble here ? Litigation ? … A more conservative method would be to have a set $ down , $ per month amount. I’d much prefer to engage in the former technique , but the last place I need to be is in a courtroom explaining myself… Opinions please.

Re: non refundable option fee ---- set price or " that’s exactly was I was looking for" - Posted by Irwin

Posted by Irwin on May 28, 1999 at 07:25:57:

It’s simple. You tell the person that the monthly rent depends on how much they can put down. So you ask “How much are you working with as a down payment?”. If they say they have $5,000, then you tell them, in that case the rent is $575. If they say $3,000, you say, in that case the rent is $575.
Or sometime I say, the down payment is usually ten percent, but we might adjust it in certain cases, so how much are you planning to put down, etc…
That said, I rarely hear them mention a figure that is more than I would have asked for to begin with.

Re: non refundable option fee ---- set price or " that’s exactly was I was looking for" - Posted by JohnBoy

Posted by JohnBoy on May 28, 1999 at 02:06:20:

It all depends on the buyer. One buyer may have more credit problems than another buyer. So I may require more money up front from that buyer. I may need more money from one buyer in order to get their payments down to where they need to be. There can be a lot of different factors involved as to why I required more money up front from one buyer over another buyer. It’s MY property and I have the right to require what ever amount I choose.

If what your saying is the case, then how can banks allow one borrower to borrow 80% LTV and only allow another borrower to borrow 70% LTV on the same property? Credit, income, job history, credit scores, down payment, etc.

Same thing!

Re: non refundable option fee ---- set price or " that’s exactly was I was looking for" - Posted by Judy

Posted by Judy on May 28, 1999 at 14:56:23:

I’m confused. If the person pays a larger down payment, shouldn’t he get a lower rent?

Re: non refundable option fee ---- set price or " that’s exactly was I was looking for" - Posted by chris

Posted by chris on May 28, 1999 at 09:36:16:

Should applicants who are able to pay more up front be able to choose between being able to pay less rent each month or having some of their rent be credited to the purchase price?..When I mentioned "down " in my above post , I meant the non refundable option fee , which ( I think ) should fall in the area of 3% of the strike price.

Re: non refundable option fee ---- set price or " that’s exactly was I was looking for" - Posted by chris

Posted by chris on May 28, 1999 at 09:55:26:

I see your point , but the bank isn’t a landlord in such a relationship ( & therefore many of the laws which affect a landlord / tennant concern are not relevant ? )…All credit scores being equal , is it a good business practice to take thousands more from one applicant just because he/she has it? … The technique mentioned above is used even before an applicants credit history is known. …I think we should have the right to do anything ( w/in reason ) w/our properties , but the #!%^*#! government doesn’t allways see it that way. If I’m wrong about something here , set me straight.

Re: non refundable option fee ---- set price or " that’s exactly was I was looking for" - Posted by JohnBoy

Posted by JohnBoy on May 28, 1999 at 15:48:35:

The buyer isn’t making a down payment. They are paying a “non-refundable option consideration” fee. This isn’t a down payment. It’s a fee for you locking in a preset purchase price at a future date and taking your home off the market for a certain period of time. That has nothing to do with the rent. However, if the tenant/buyer decides to exercise their option anytime within the term of their contract before it expiries they get to deduct the amount of the option consideration from the original option price they have.

If they choose NOT to exercise their option for any reason then the option consideration is lost.

So lets say I was to give you a l/o on a house I had. You say you can put down $5k as option consideration and afford the $1000 a month in rent payments I require on this property. I agree to lock in your purchase price for one year at the $100k sales price. If you exercise your option you will have to pay $95k when you exercise. If you don’t exercise then you get zip! You lose the $5k. That goes to me as your option consideration for tying up the property for a year.

Lets say you tell me you can come up with $10k option consideration. Then your amount needed to exercise will be $90k. It doesn’t change the amount your going to pay for rent. This isn’t like taking out a mortgage where by the more you put down the lower your payment would be. This is only a lease with an option to buy at a preset price at a future date.

If I’m going to take my property off the market and let you tie it up for a year where I can’t sell it to someone if they were to come along and offer me more money for it, then don’t you think that it’s only fair I charge something for doing that? If you exercise your option then I’ll deduct the option consideration from your purchase price. If you choose not to exercise then you lose the option consideration.

What happens if the property was to go down in value over the next year by say, $10k? Are you going to exercise your option if you put $5k up as option consideration and had to come up with $95k to exercise? Most likely not. Now I’m stuck with a house that is worth $10k less than what it was worth a year ago because I let you tie it up for a year. Isn’t that worth something to me for taking that risk?

Lets say the property goes up in value by $10k in a year. You need $95k to exercise your option. Are you going to exercise the option knowing you would gain an extra $10k in equity by doing so? More than likely you would. So now I’m out an extra $10k if you exercise your option. Isn’t that worth something to me for taking that risk of losing extra equity I could of gotten over the next year? Of course it is. I could have just rented the property for $1000 a month and charged the renter 1st and last months rent plus a cleaning deposit of $300.

After a year if the value went up or even if it didn’t I could raise the rent by $25-$50 a month and keep collecting rent from the property and continue to build equity. So if I’m going to guarantee someone an option to buy my property and take it off the market for a year and lock in a preset purchase price then I’m going to get something to make it worth it for me to do that.

So regardless of how much I can get up

Just stay clear of discrimination… - Posted by Carmen

Posted by Carmen on May 28, 1999 at 16:53:42:

I am no attorney, but I think that as long as you stay clear or discrimination due to race (Civil Rights act of 1866) or color, religion, sex, national origin, handicap or familial status (Civil Rights Act of 1968, Title VIII: Fair Housing Act) and, in the case of multiunits the Americans with Disabilities Act of 1990 you should be all right asking for different amounts from different people. Otherwise, where does negotiation come in? Or auctions? Or sales? Or coupons? How would you hold job interviews if you had to accept every applicant with a high school diploma? Or… I could go on.

I believe the terms should define the price. Car dealers do it every day. And as JohnBoy mentioned, what you are collecting is Option Consideration - an amount of money which will entice you to take your home off the “sale” market for a specified period of time. If one person offers $5K, and another $10K, it is a sound business decision to take the $10K.

The one time I see you could get in trouble is if you turned away every person based on any of the criteria above (sex, race, etc.) before considering them, or always demanded $10K from, say, all Polish people, but only $5K from, say, all Irish people.

Re: non refundable option fee ---- set price or " that’s exactly was I was looking for" - Posted by JohnBoy

Posted by JohnBoy on May 28, 1999 at 10:30:24:

Taking option consideration has nothing to do with tenant/landlord issues either. The option consideration has nothing to do with a security deposit. It’s a “non-refundable option consideration”. What this is, is a fee for me tying up my property for a certain time period giving the tenant the right to purchase the property at a guaranteed preset price at a future date.

If I gave someone an option to buy my property for $100k within a year, in which I received money for consideration, (which you must receive consideration to make the option legally binding) and someone else happened to come along after the fact and offered me $125k in cash to purchase the property now, I can’t legally sell it to him because I gave someone else an option which is good for a year or what ever amount of time I allowed. That’s what the option consideration is for. It has NOTHING to do with renting or security deposits.

As far as the government goes, they can kiss my #$%@*&$#@ _ss! It’s MY house and I’ll charge what ever amount of money I want to whom ever I choose to give an option too! No government is going to tell me how much I can sell my house for or how much I can charge someone to take my house off the market for any given time period to lock in a guaranteed price to purchase it at. If the buyer doesn’t like the price and/or terms then they don’t have to buy it! This isn’t a rent control issue. Which by the way, in my state I can own as many single family homes as I choose and I’m not governed by any rent control laws to my knowledge. It’s only when you get into multi unit buildings you may have rent control issues to deal with.

If I own two identical houses next door to each other and I charge one tenant $800 a month and charge the other tenant $1200 a month to rent from me that’s my business. I’m a private party who owns private single family homes and I can charge who ever, what ever I choose. If the tenant doesn’t like it they don’t have to take it! No laws that I’m aware of that state differently pertaining to single family homes.

Thanx everyone , I’ve learned some things , but… - Posted by chris

Posted by chris on May 29, 1999 at 02:31:05:

all credit scores being equal , ( and the investor not knowing it because he/she han’t checked yet - it’s the first [ phone] contact here ) doesn’t asking one person ( that might be from a protected group ) for more $ than the other applicant , ( let’s say a WASP ) FOR THE SAME HOUSE put one into a position that may not be the most advantageous? The protected minority ( perhaps w/a thick accent ) might say the investor could tell where he/she was/wasn’t from by the sound of his/her voice. The unhappy applicant could have a WASPY sounding friend call back after their conversation and that’s it - both testify - same property - higher price for the guy from Sri Lanka - investor cooked. Am I right or am I wrong?

YEAH!! - Posted by Maurice (Ca)

Posted by Maurice (Ca) on May 28, 1999 at 10:52:59:

Yeah…they can kiss my “#$%@*&$#@ _ss!” too!!

Let the prospect name his/her own figure!! - Posted by Jim Kennedy

Posted by Jim Kennedy on May 29, 1999 at 11:31:41:

I let the prospect tell me how much he/she wants to put into the deal. My verbiage is the same for both lease/options and outright sales. ?Mr. Prospect, how much were you considering to put down on your next home??

Most often, the prospect?s response is something along the lines of: ?Well, how much to you want down??

My response: ?Well, Mr. Prospect, what I do is try to tailor each situation to fit the needs of the buyer. I try to be as accommodating as possible to develop a plan that works for both of us. Obviously, the more money you can put in up front, the more flexible I can be in other areas. What range were you thinking of for your initial investment??

Once I have a figure from the prospect, I basically have three ways to go:

  1. If the figure is higher than I wanted, GREAT! My response (with a slight pause before answering and while restraining my enthusiasm): ?I can work with that.?
  2. If the figure is close to the amount I was looking for, same response, ?I can work with that.?
  3. If the figure is lower than what is acceptable, ?Mr. Prospect, is that the most you can afford up front??

By doing it this way, virtually every prospect ends up with different figures based upon THEIR needs and capabilities, NOT their country of origin or any other criteria. I don?t care if they are from Sri Lanka, Kuala Lumpur, or Katmandu.

Just my .02 ? works for me.

Best of Success!!

Jim Kennedy,
Houston, TX

Re: Thanx everyone , I’ve learned some things , but… - Posted by JohnBoy

Posted by JohnBoy on May 29, 1999 at 10:27:27:

Your making mountains out of molehills. First of all, the name of the game isn’t screw your tenant based on race or whatever. You have a minimum set amount in your mind that you will accept up front. It doesn’t matter who calls. There’s a minimum up front amount I will take to even be “considered”! It isn’t a case of, I want $5k down and your in and then turn around and say your out now because I got someone that said they have $10k to put down. Regardless of what you have to put down I’m going to qualify you before committing to rent to you. If several people show up to apply before I make a final decission then I’ll pick the one I’m most comfortable with regardless of who has more to put down. That’s why I “ask” how much they have to put down instead of telling them how much will put them into the property.

Lets say you have a home with a FMV of $100k that your going to l/o. The LEAST amount your willing to take is say $3k down as option consideration. You don’t advertise $3k needed to get in. When someone calls on your ad you ask, “How much can you put down?”

If one person says I can put down $2k, you would say I’m sorry but the minimum I’ll except is $3k. If another person says I can put down $10k and another says I can put down $4k, which are you going to be inclined to take? Probably the one with $10k, right?

So why did you lean towards the one with $10k?? Was it because of his accent, race, religion, sex, etc.?? NO! It was because he has more money period! The more money someone has to invest in the property the more likely they will tend to take care of the property. I’m in business to make a profit, not sit around and worry about some sue happy idiot out there looking to make an easy buck off me by playing the race card because they didn’t qualify by my standards to l/o my property.

Personally I could care less what race someone is. What I care about is how much down, how much a month, and can they afford the payments. Then from that point it’s, hows their credit and can they qualify in a year or two to get a new loan so they can exercise their option. Are the things they will be required to do over the next year or two things that are within reason to accomplish providing they put forth the effort to accomplish them.

Getting them qualified for a new loan will be a combination of my experience and running their credit by a good mortgage broker to see if their chances of getting a new loan are possible and providing they have done the things they were suppose to do on cleaning up their credit. This could be a case of needing to pay down on some credit card debt to get their debt ratios down. Can they afford to accomplish this and afford to pay my rent if they commit to this. It may just be a matter of needing time to re-establish their credit by showing they can pay their bills on time since filing a recent BK. Whatever the problem is, can they accomplish cleaning it up over the next year or two while they’re paying rent living in my property?

After I satisfy my own judgement and if I think this is something that’s within reason if they just put forth a little effort then I’ll sit with the tenant and get their input on the matter. What do they feel they can do. Will they feel comfortable having to make the commitments needed to accomplish this so they can get refinanced in a year or two?

If they haven’t lied about anything and I’m satisfied and the tenant says they’re comfortable with everything and I’m satisfied with the way they answered everything, then I’ll move forward with letting them l/o the property. All of these factors will play a major part on how much I may require them to put down before I l/o my property to them.

So you see, if I need a minimum of $3k up front and caller #1 calls and has $2k, caller #2 has $4k, and caller #3 has $10k, I’ll tell caller #1 right up front that $2k won’t cut it. They will need at least $3k before I even “consider” them. Caller #2 and #3 I’ll say, I might be able to work with that. It all depends on you, your credit, income, references, etc. You see, I didn’t say I “want” that amount down. I said I “might” be able to work with that.

If after talking to caller #2 and #3 turn out to be completely equal as your putting it, like having the same credit, same credit score, (which by the way, credit scores are worthless! One could have a decent credit score and have all collection accounts on their credit while another person could have a lower credit score with 0 collection accounts and all bills paid on time! I know because I’ve seen this plenty of times. I seen one credit file that had 16 outstanding collection accounts and not one good credit reference with a score of 640. Another person had a score of 630 with 0 collections and all bills were paid on time. So don’t go by credit scores. Personally look over their credit file.) same type of jobs, same income, same everything and both equally qualify exactly the same, but one has more money than the other one has, then I’ll naturally take the one with the most money to put down.

If the person with the lessor amount to put down happens to be the minority in this case, well, welcome to America my friend! Freedom of choice, freedom of speech, and free trade. I’ll charge what I want, to whom I want, for whatever reason I want. If you don’t like the price or terms, then you have the right not to buy it!

Oh, by the way, if you ever did happen to end up with 2 people that qualified exactly the same with credit scores, income, job history, references, etc., and they meet your qualifications to rent to, then I would seriously work on finding another house so I could get both of them!