Owner Finance/Lease option? - Posted by Builder1

Posted by Michael Morrongiello on April 19, 2000 at 10:52:56:

You starting the LTV of the owner financed mortgage out at too high a starting LTV (90%). I would suggest you START the mortgage LTV out at 80% ($49,600.00) and no more than 85% Max. You would then hold a larger 2nd lien. Also that interest rate of 12.75% can be reduced to make it more attractive to prospective buyers. A 12% rate will work just fine.

Try to qualify the employment stability and credit of the buyers as these will be important issues in creating cash liquidily for your paper sooner rather than later.

In fact, thats one of the BIG advantages in owner financing the sale rather than selling using a lease option. If you need to or want to your owner financed paper can be coverted into CASH much sooner than having to wait and find out whether your tennants will actually excercise their option or can even obtain financing down the road to complete the purchase of the home.

You get cash out today and can move on down the road to do more deals…

To your success,

Michael Morrongiello

Owner Finance/Lease option? - Posted by Builder1

Posted by Builder1 on April 19, 2000 at 08:39:18:

I own a home that I have been trying to sell. I asking 62K it is not in a real good neighborhood, Mix rentals and O/O. I ran a rent to own ad in the paper, boy I had at least 15 calls from the paper. My question is I would like to put someone in this home ASAP either through lease option or a owner finance. I have done some advertising with owner will finance but the people that have looked at so far either have bad credit or did not like the area. With a lease option what should be asked for option money. The people I told yesterday was $3,100.00 and $750.00 per month with $100 rent credit. I think the 3100 scared the heck out of them for lease purchase. Look at the following plans and tell me what I am doing wrong.

Lease Purchase Plan
Sales price 65,000
Down/Option $1950.00
Lease purchase payment $775.00 (100.00 rent credit)
Strike price at 18 months $61,250.00

Owner Finance Plan,
Sales price $62,000
Down $3,100.00
First Mortgage $55,800 rate 12.75 term 30 year payment $606.37
Second Mortgage $3100 rate 12.75 term 30 year payment $33.69 with balloon 24 months

Please advise on this:

Re: Owner Finance/Lease option? - Posted by Jim IL

Posted by Jim IL on April 19, 2000 at 14:26:49:

As Mike pointed out below, there are some advantages to “owner financing”, or “owner carrying the note”.
But, there are also advatnages to the L/O as well.
It just depends on what your goal is?
Do you want to cash out quickly, or do you want to maximize your profit?
If it is the second, then a L/O in my opinion is the way to go.
Take a look at what you are offering for the L/O.
“Lease Purchase Plan
Sales price 65,000
Down/Option $1950.00
Lease purchase payment $775.00 (100.00 rent credit)
Strike price at 18 months $61,250.00”

Now, we do not know your underlying financing (payments or balance), so it is hard to see just what you have to work with.
But, think of it this way;
If you do the above, and the T/B’er exercises, you make the $1950 upfront, hopefully some cash flow and a back end.
But, if the T/B’er fails to exercise, then you can keep the $1950, all the cash flow and do this over again with a new T/B’er later.
And of course the sales price will increase for the next T/B’er you put in there.

Frankly, I do not know your area well at all, but $1950 sounds too low to me for option money.
I’d not mention a number on this to any prospective T/B’ers.
See what they can come up with first, and take the highest one.
You may be suprised to find someone with say, $5k.
I did a property in this price range last year, and collected $3k in option money, and offered NO rent credits.
In fact, while I’m thinking about that, forget mentioning that number as well.
Use that in negotitaions with the T/B’er.
If they ask for something, then give them the $100/month you offered now.
Otherwise, why give them any rent credits at all if they are not asking for them.
This makes more backend profit for you.

Just my $.02 anyway,
Jim IL