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Started By
Message
Would you offer this lease to own
Posted on 3/17/16 at 7:37 pm
Posted on 3/17/16 at 7:37 pm
I have a house worth around 500k and the market here is flooded with them and none are moving. Someone I know whom I really trust financially made the below offer. Would you do it. House is paid for.
100k cd pledged as collateral
Lease of 25k a year
Triple net so all taxes, insurance, liabilities are the responsibility of the leaser
After 5 years leaser will purchase the house with 1000 of lease paid going toward purchase. This house is three hours from where I live now and I had it listed for 1 year with no activity. Clearly I would still own the house and hold the 100k as collateral.
Agree to purchase price of 500k on the front in with an obligation to buy in five years.
Would you do it?
100k cd pledged as collateral
Lease of 25k a year
Triple net so all taxes, insurance, liabilities are the responsibility of the leaser
After 5 years leaser will purchase the house with 1000 of lease paid going toward purchase. This house is three hours from where I live now and I had it listed for 1 year with no activity. Clearly I would still own the house and hold the 100k as collateral.
Agree to purchase price of 500k on the front in with an obligation to buy in five years.
Would you do it?
3
Posted on 3/17/16 at 8:24 pm to new roads
If the market is flooded with them and there is little movement, prices will be dropping. Why would he offer that to you when he has better options coming?
Posted on 3/17/16 at 8:27 pm to wickowick
Because it is a deal that allows him to make payments and put 100% toward principle. Now that your curiosity is satisfied the question is it is a good idea for the seller, not the buyer.
Posted on 3/17/16 at 8:40 pm to new roads
Your 100% of lease towards principle was not clear above.
If it gets it off your books and you are making a profit on the sale price why not?
Upside is if he does not come through in 5 years it's yours to resell.
If it gets it off your books and you are making a profit on the sale price why not?
Upside is if he does not come through in 5 years it's yours to resell.
Posted on 3/17/16 at 8:58 pm to new roads
quote:
100k cd pledged as collateral
Lease of 25k a year
Triple net so all taxes, insurance, liabilities are the responsibility of the leaser
After 5 years leaser will purchase the house with 1000 of lease paid going toward purchase. This house is three hours from where I live now and I had it listed for 1 year with no activity. Clearly I would still own the house and hold the 100k as collateral.
So you'll receive $124,000 of the $125,000 paid over the five years and the leaser would agree to your price of $500,000 after five years?
And he's covering insurance, taxes, etc?
Your principle payments (assuming you have a mortgage) should be way more than covered. What else am I missing?
Posted on 3/17/16 at 9:08 pm to lnomm34
So you're getting $625,000 for a home that you want $500,000 for today? That sounds like a no brainer assuming oil doesnt recover, which I dont think it will for a sustained period. The only way this is a bad deal is if your friend can't obtain the financing in 5 years. If I was you, Id just owner finance it for him today with the $100k down instead of a CD. Get out of that property, oil is never coming back to $80+ imo.
Posted on 3/17/16 at 9:19 pm to dabigfella
Let me clear this up guys. Sorry for the confusion.
Selling price of 500k
Payment over five years of 25k 100% applied to the selling price above. At the end of five years a sell will be made for the balance of the total 375k. So for the buyer 100% of his payments will reduce the cost of future mortgage.
Rather than hold the house for six more months with a realtor and net 450k six months from now, I'll get the whole 500k at the end of five years.
I'm just ready to move on from the house.
Selling price of 500k
Payment over five years of 25k 100% applied to the selling price above. At the end of five years a sell will be made for the balance of the total 375k. So for the buyer 100% of his payments will reduce the cost of future mortgage.
Rather than hold the house for six more months with a realtor and net 450k six months from now, I'll get the whole 500k at the end of five years.
I'm just ready to move on from the house.
Posted on 3/17/16 at 9:34 pm to new roads
Where is the downside?
Yes, do it after talking to CPA
Yes, do it after talking to CPA
Posted on 3/17/16 at 9:37 pm to new roads
Thats not a good deal unless you really feel the bottom is gonna fall out in that area.
This all in all sounds like a big headache for you
1.your friend could die within 5 years in an accident
2.your friend may not be able to obtain financing
3.your house may tumble & your friend decides to walk away from the deal
4.Some miracle happens & houses boom & you're locked into a $500k sale
There aren't many scenarios I can think of where I would agree to sell a home at today's value in 5 years. If I'm you I owner finance it to your friend today for the $100k he wants to put down and figure out a payment schedule and get out of this property if you're so worried about it and can't move it any other way. He's already going to be an NNN tenant, so whats the difference whether he buys it or not?
Hope I was of some help
This all in all sounds like a big headache for you
1.your friend could die within 5 years in an accident
2.your friend may not be able to obtain financing
3.your house may tumble & your friend decides to walk away from the deal
4.Some miracle happens & houses boom & you're locked into a $500k sale
There aren't many scenarios I can think of where I would agree to sell a home at today's value in 5 years. If I'm you I owner finance it to your friend today for the $100k he wants to put down and figure out a payment schedule and get out of this property if you're so worried about it and can't move it any other way. He's already going to be an NNN tenant, so whats the difference whether he buys it or not?
Hope I was of some help
This post was edited on 3/17/16 at 9:39 pm
Posted on 3/17/16 at 9:41 pm to dabigfella
quote:
oil is never coming back to $80+ imo.
And a few years ago it was never gonna get below 100
Say the Saudis and Iran went up war tomorrow?
Posted on 3/17/16 at 9:45 pm to Strannix
They can go to war, I don't know if you've noticed but we're flush with oil. There are tankers sitting at sea loaded with oil, we literally have nowhere to put it. Lets not forget the new supply we're finding all over the place and the fact that nowadays we're unlocking a higher percentage of wells than we ever did before.
I cant complain Im loving the oil bust, Im in the convenience store business and for the first time ever Im actually finally making big money on selling gas bc our margins have expanded massively. I hope oil stays low forever. We're back close to $40 but I don't see what on the horizon is going to give us another 100% move. You'd need a cut from OPEC and they don't seem interested in doing so. Don't you find it interesting that Saudi Arabia is finally ready to IPO Aramco at the lows........they never wanted to take the worlds largest company public till now, to me that says they're ready to drop some bags on the retail public before we find out just how plentiful oil is
I cant complain Im loving the oil bust, Im in the convenience store business and for the first time ever Im actually finally making big money on selling gas bc our margins have expanded massively. I hope oil stays low forever. We're back close to $40 but I don't see what on the horizon is going to give us another 100% move. You'd need a cut from OPEC and they don't seem interested in doing so. Don't you find it interesting that Saudi Arabia is finally ready to IPO Aramco at the lows........they never wanted to take the worlds largest company public till now, to me that says they're ready to drop some bags on the retail public before we find out just how plentiful oil is
This post was edited on 3/17/16 at 9:46 pm
Posted on 3/17/16 at 10:25 pm to dabigfella
quote:
They can go to war, I don't know if you've noticed but we're flush with oil. There are tankers sitting at sea loaded with oil, we literally have nowhere to put it. Lets not forget the new supply we're finding all over the place and the fact that nowadays we're unlocking a higher percentage of wells than we ever did before.
I cant complain Im loving the oil bust, Im in the convenience store business and for the first time ever Im actually finally making big money on selling gas bc our margins have expanded massively. I hope oil stays low forever. We're back close to $40 but I don't see what on the horizon is going to give us another 100% move. You'd need a cut from OPEC and they don't seem interested in doing so. Don't you find it interesting that Saudi Arabia is finally ready to IPO Aramco at the lows........they never wanted to take the worlds largest company public till now, to me that says they're ready to drop some bags on the retail public before we find out just how plentiful oil is
1) congrats on derailing the thread
2) I would not bet on cheap oil longterm. Alternative energy is simply not ready and we lack the battery technology to push alternatives at the moment.
Posted on 3/17/16 at 10:59 pm to new roads
So you are basically financing the house for him interest free for five years?
If you want to do this, don't do it as lease to own, do it as seller financing. Sell the house now. 25K a year for 5 years, 375K balloon due at end.
Now, if you do it this way, and he walks in 5 years, you will have to foreclose which is more complex than a rental eviction and/or just letting the lease expire.
But with the lease to own, you are having to deal with still owning the house. Yes, he can insure it, but your name is still on it.
If you trust him and you want out and you want out so bad that you are willing to give him interest-free, just sell it now and be the bank for five years.
If you want to do this, don't do it as lease to own, do it as seller financing. Sell the house now. 25K a year for 5 years, 375K balloon due at end.
Now, if you do it this way, and he walks in 5 years, you will have to foreclose which is more complex than a rental eviction and/or just letting the lease expire.
But with the lease to own, you are having to deal with still owning the house. Yes, he can insure it, but your name is still on it.
If you trust him and you want out and you want out so bad that you are willing to give him interest-free, just sell it now and be the bank for five years.
Posted on 3/18/16 at 6:37 pm to new roads
The "with 1000 of lease paid going toward purchase" is a typo that should read "100%", correct?
This sounds like more of a purchase agreement, not so much a lease. If he was paying fair market rent and then applying a sum above that to the purchase, it would be more typical of a lease to own. It looks like this fellow worked out what the P&I would be on a 30 year fixed rate at about 2.9% on $500K. That's right at $25K/yr. But in your case, it's all going toward principal, correct? He is taking care of the taxes and insurance burden. That's a plus. And if you're happy enough with the price and to float an interest free loan for five years, all is good. It sounds like a great deal for him (unless the value collapses). But it still might be a good deal for you.
BTW, how do you lay hands on the $100K CD if he's unable or unwilling to complete the transaction? And what happens to the "principal" (equity) that he has built? The forfeiture clause in this contract would have to be carefully worded. And I would consult an experienced real estate attorney and a CPA before I got too deep into this.
Best of luck with it.
This sounds like more of a purchase agreement, not so much a lease. If he was paying fair market rent and then applying a sum above that to the purchase, it would be more typical of a lease to own. It looks like this fellow worked out what the P&I would be on a 30 year fixed rate at about 2.9% on $500K. That's right at $25K/yr. But in your case, it's all going toward principal, correct? He is taking care of the taxes and insurance burden. That's a plus. And if you're happy enough with the price and to float an interest free loan for five years, all is good. It sounds like a great deal for him (unless the value collapses). But it still might be a good deal for you.
BTW, how do you lay hands on the $100K CD if he's unable or unwilling to complete the transaction? And what happens to the "principal" (equity) that he has built? The forfeiture clause in this contract would have to be carefully worded. And I would consult an experienced real estate attorney and a CPA before I got too deep into this.
Best of luck with it.
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