Options, notes, etc. - Posted by Michael Morrongiello
Posted by Michael Morrongiello on January 14, 2001 at 20:13:28:
Typically one cannot not sell the income stream generated from a lease option. Certainly you can sell the rights to the option itself however.
One of the main issues I have with selling a property using a lease option type sale is the tremendouse UNCERTAINTY that you mentioned. I understand that over 50% of the prospective buyers do NOT end up purchasing the property they have optioned to buy. Essentially this means that you anticipation of “cashing out” a year or two from now by counting on the tennant buyer concluding his/her purchase is tenuous at best.
Wouldn’t it make more sense to simply “roll over” a prospecitive lease option buyer into a SELLER FINANCE Private mortgage after they have demonstrated that they can make the rental payments timely for a period of time (12 months or more)?
At least this way you can better control the and even assist the tennant buyer to conclude their purchase and cash you out.
Now conceptually this may sound easier than it appears, however with some attention paid to the following issues, this is a great way to terminate your lease option sales and assist yourself and your buyer.
How much cash down, or rental credits have been built up?
Has there rental payments been similar to what a mortgage payment would be in the sub prime marketplace?
What is the buyers credit like, credit scores, employment, stability, etc.?
Do you have sufficient equity or “spread” in the deal between what you may owe your seller, and what your tennant buyer owes you?
We have purchased numerous seller financed notes that were created by a frustrated seller who thought they were going to be paid off under a lease option purchase agreement only to find out that the buyers could not finance the sale to conclude their purchase. By “rolling” these tennant buyers into a seller financed scenario, it allowed the buyer to conclude the purchase, the seller to cash out their equity, and to terminate the uncertainty of the future.
Just some thoughts to consider…