Posted by James Harris on January 26, 2000 at 24:21:59:
Edna, have you performed a comperable worksheet yet? If the seller paid this price over ten years ago, don’t you think that property value has gone up? Talk with a real estate agent, find out what an average increase has been for the last ten years or so then multiply the selling price then by the rate of inflation or increase in the market. This property has a high probability of being worth about $144,000. And, if he just wants $90,000, well don’t hesitate too long, someone else just might buy it out from under you. If you decide that you buy this property, create a note stating that you will buy the property at a specified amount, over the course of 30 years, then if he wants all cash, sell the note, pay the seller his money $90,000. Pocket the rest. I am a note broker, I will bid on this mortgage right now; I will pay(pending credit check) up to $.92 on the dollar. Which means to you after closing this deal a profit of about $39,000. Minus of course all other costs are paid. Email me soon, if you would like to do this deal.
Posted by EDNA MC on January 25, 2000 at 18:47:17:
I FOUND A MOTIVATED SELLER WHO WOULD RENT OPTION PROPERTY BUT HE WANTS HI-PRICE FOR A 2 BDRM ON LONG ISLAND. HE IS WILLING TO RENT FOR $875 PUTTING $200 IN ESCROW FOR DOWN PAYMENT BUTTTTTT THE PRICE IS $90K AND THATS HIGH CONSIDERING THE AREA AND THE GOING PRICES. HE WANTS WHAT HE PAID BACK IN '88. WHAT WOULD BE A GOOD SOLUTION TO THIS?
First thing I would do is ignore the advice your received below. Once thing you do NOT do is to figure the value of a property by multiplying the sales price by an appreciation rate.
It sounds like you are evaluating the property correctly. You look at sales of comparable properties in the area. If the option price is above this then your suspicion may be correct…the seller is trying to get more than the property is worth.
In the case of a lease/option though…one possible solution is to obtain some renewals of the agreement. As an example, let’s say the seller is willing to do this deal for 2 years. You want the right to renew let’s say twice. The impact of this if he agrees is that the rent credit is 3 times as much…thus lowering the effective sales price when and if the option is exercised.
Another possible solution is to give him his price, but negotiate a lower rental payment. Again, what you lose in paying too high a price, you might be able to make up in terms of a lower rental payment.
The key with a lease/option is to understand that there is more than one area of negotiation. Only one of those is the sales price. Another is the upfront option consideration. A third is the rental payment amount. A fourth is the rent credit. A fifth is the duration of the agreement.
Any one of these terms if negotiated extremely favorable to you might be able to offset an unfavorable term…and enable you to profit.