I’ve got Questions… - Posted by Michael Morrongiello
Posted by Michael Morrongiello on February 12, 2002 at 13:03:00:
A lease option that provides rental income is NOT a true instrument of indebteness…Although there are some investors that might purchase a years worth of rental income at a discounted cash amount, these investors are few. They are also buying rental income streams on well seasoned rental investment properties where there is a lot equity that exists in the property.
My concern in looking at your deal involves these questions, which you must ask yourself;
You have a home you stated is worth $100K, you’ve “sold” under a lease option for $110K. Where is the security in this?
Your anticpated “back end” of $15,000.00 (the difference between what is owed on this home of $95K and your inflated $110K sales price) often will NEVER be realized when the tennant buyer is unable to complete and consumate their purchase of the home. What happens if that unfolds?
The monthly cash flow spread of $200.00 per month (difference between what you are to collect in rent of $964.00 and the $764.00 mortgage payment) is about the only thing that I see could really be considered tangible cash flow. However the same question beckons here: What happens IF the tennants are slow, or stop all together in paying the rent?
Most investors want some security or assurances that if all else fails they will somehow protect their principal and get repaid. What are you offering here?
If you follow the thought process, I think you’ll see why it is VERY difficult if not almost impossible to attract an investor to put up their cash for this type of deal UNLESS there is some other ample security or collateral that can “sweeten” the dish.
To your success,