I was just wondering about a situation I believe could develop with Lease Options when it came time for the tenants to exercise their option to buy.
If the agreed purchase price ends up being higher than the market valuation for whatever reason (in the current market I can think of a few reasons) when the tenant comes to buy, will the bank lend based on the purchase price. I think not.
Because it is a private sale, they will require a registered valuation especially if the market is entering a slump. Then I imagine they will only lend to the valuation price which could leave some tenant buyers unable to purchase the property.
Even if you buy well below market value and agree to sell at todays market value, a 10% shift could mean that the tenants strike this problem.
Any solutions for this potential problem? I have thought of these so far -
- Buy well below current valuation and maybe reduce purchase price if required.
- Make sure there is large potential to increase the value cosmetically.
- Leave in some vendor finance when selling?
Any other ideas would be great.
Cheers,
Geoff
If the agreed purchase price ends up being higher than the market valuation for whatever reason (in the current market I can think of a few reasons) when the tenant comes to buy, will the bank lend based on the purchase price. I think not.
Because it is a private sale, they will require a registered valuation especially if the market is entering a slump. Then I imagine they will only lend to the valuation price which could leave some tenant buyers unable to purchase the property.
Even if you buy well below market value and agree to sell at todays market value, a 10% shift could mean that the tenants strike this problem.
Any solutions for this potential problem? I have thought of these so far -
- Buy well below current valuation and maybe reduce purchase price if required.
- Make sure there is large potential to increase the value cosmetically.
- Leave in some vendor finance when selling?
Any other ideas would be great.
Cheers,
Geoff
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