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What's the problem with Lease Options?

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  • What's the problem with Lease Options?

    I'm looking at doing the GBI course, but need to know how generally acceptable this kind of deal is. For example, I've tried mu own kind of innovative deals for our last couple of homes, but came up empty-handed because they were too unconventional.

    Is this the same for the LO concept? Am I going to be turned down by 9 out of 10 buyers on a LO deal when they all would have said yes to a simple cash offer?

    Just trying to understand the system. Obviously the principals are doing well so it's not impossible...I just need more information.

  • #2
    Another thing - I've been out of the game for a year or so, but the rent-to-buy concept attracted a lot of bad press back then. Has anything changed?

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    • #3
      HiKevin. Lease options is not about "getting a bargain". It's a finance strategy to enable you to get control of or purchase way more property than you could any other way and get a better return. Attending Doriens course was the best and most profitable thing I've ever done as an investor, (apart from doing the Richmastery Academy which got me started).
      You will benefit enormously from knowing how to do lease and sandwich lease options.

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      • #4
        Are many people doing lease options right now after (or during) the boom when house prices are at their peak (or near it). I have spoken to a couple of full-time investors this week that haven't done many LO's for a while because the extra rent they need to cover the deposit and mortgage is beyond the grasp of most people because the market has moved so strongly.
        I too am considering the course but I want to be able to instigate it straight away in this market. I am concerned if some of the lease option pros are telling me that flicks are a better option at this stage in the market and they aren't doing LO's right now.
        It would be great to hear examples from other pros on the forum of recent LO deals they have done in the current market and where.

        Cheers,

        Geoff

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        • #5
          Hi Moovet. I believe you wouldn,t be asking this question if you had done the course. L/O's and SLO's work in any market. They give you control of a property, often for no money down at all. You will be able to buy and sell more property with this strategy than without it. Doesn't matter what the market is doing.
          Last edited by [email protected]; 19-07-2006, 09:34 AM.

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          • #6
            Thanks Dean.

            I'm assuming lease options do not have the stigma of rent-to-buys? How similar are they seen today? I certainly wouldn't like to be visited by some investigative tv program as happened a year or two back.

            I believe the LO is how Graeme Fowler started, but has since gone on to other things.

            And someone here claimed they got $750,000 from doing LO... how does this work? If the profit is the difference between the mortgage and the lease payment, then there are either a lot of properties involved - or some big margins.

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            • #7
              Originally posted by pooomba
              Hi Moovet. I believe you wouldn,t be asking this question if you had done the course. L/O's and SLO's work in any market. They give you control of a property, often for no money down at all. You will be able to buy and sell more property with this strategy than without it. Doesn't matter what the market is doing.
              Hi Poomba ,
              I may be one of the people Moovejet is talking about.
              Yes , I have done L/O 's & D&R's course . It made me a much better investor . But I fail to see how anyone can make a decent weekly spread on houses in a main centre with typical rental yeilds being so low. If anyone out there is doing it they should post some examples .

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              • #8
                Originally posted by Brettus
                But I fail to see how anyone can make a decent weekly spread on houses in a main centre with typical rental yeilds being so low.
                OK, here's one of my recent deals in West Akld (4 brm):

                Purchase: $257,000
                RV: $310,000 (also tenant\buyer's purchase price)
                Loan (80% of RV less chattels): $242,000
                Mortgage: IO 7.69% fixed 30 months (recent Westpac special)
                Market Rent: $385

                Costs: Mortgage + Rates + Insurance = $388 weekly

                Tenant/buyer Option fee: $10,000
                Weekly Payment: $495

                That gives me a weekly spread of $107

                My weekly spreads range from $98 - $189 at the moment.

                Incidentally, I had to get a new RV on this one recently which came in at $330,000 so the tenant\buyer has already made $20,000, or if they fall over the next one will pay the higher price.
                Last edited by Cliffy; 19-07-2006, 02:20 PM.
                We Buy Houses | Sell Your House Fast - No Fees, No Stress

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                • #9
                  Thanx Grant,

                  That is a good example. I was just wondering how you managed to get a loan based on RV rather than purchase price?

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                  • #10
                    I have a lender that gives me 80% of RV due to history and relationship with that lender.

                    Same can be achieved with most banks by financing 80% of purchase price and then re-finance to 80% of RV 6 months later.
                    We Buy Houses | Sell Your House Fast - No Fees, No Stress

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                    • #11
                      Yeah I knew of the latter, not the former. And you are also able to avoid commercial rates with that lender too or do you have multiple lenders?

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                      • #12
                        Originally posted by Cliffy
                        Weekly Payment: $495
                        That seems to be the secret - how to get that payment high enough. It seems a huge premium, and especially for a low socio-economic area. Do they fall over often?

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                        • #13
                          Don't forget that part of it is "ongoing option fee" which is credited towards final purchase price, effectively making L/O a way to convert equity in cashflow. This part is also treated by banks as savings, so tenant/buyer has a history of savings to present. Also $500 is quite close to what T/B will have to pay bank after they will refinance (if they will do it after 3 years and they are getting $100 p/w credit, they will have accumulated $25000 deposit, on 25 years P&I loan @ 8% weekly will be %503 - bingo!)
                          Sorry Grant for commenting on YOUR numbers!
                          Last edited by Ivanhoe; 19-07-2006, 03:59 PM.
                          Don't argue with idiots, they'll drag you down to their level and beat you with experience.

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                          • #14
                            Originally posted by Cliffy

                            My weekly spreads range from $98 - $189 at the moment.

                            .
                            Good example Cliffy . Looks like you are onto a good thing . I would expect a spread of over $100 also to make it worthwhile . I have advertised 400-500/wk payments (in Hamilton) with no reasponse . What sort of people are taking up your options ?

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                            • #15
                              Originally posted by Ivanhoe
                              Don't forget that part of it is "ongoing option fee" which is credited towards final purchase price
                              Yes, I didn't mention the weekly credit which is $90 pw for that one. So yes, they're paying $110 more than market rent but getting $90 credited towards purchase price.
                              By my calcs, they will be paying > $500 when they go to buy and getting less than $90 of that as principal payments.

                              Originally posted by Brettus
                              I would expect a spread of over $100 also to make it worthwhile . I have advertised 400-500/wk payments (in Hamilton) with no reasponse . What sort of people are taking up your options ?
                              Yes, I generally look for aound the $100pw mark. The ones siginifcantly above that had little or no deposit so they are paying more but getting higher weekly credits.

                              I don't advertise price - get tons of calls admittedly lots not very good quality, but I weed them out pretty quickly. Found when I put in the price the calls just dried up.

                              Also quite good just directing ads to my website - then they can see the houses and sign up online.

                              People are all sorts. Some with big families where the 'Working for Families' package now gives them quite a bit more money each week.
                              We Buy Houses | Sell Your House Fast - No Fees, No Stress

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