Lease option calculations

by Readers Question

9:26 AM, 1st August 2014
About 4 years ago

Lease option calculations

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Lease option calculations

Hi all, can you please help me?

I’ve a friend that is now a distressed landlord. I drew up a lease option to purchase the house but I’m having trouble with the calculations. I only have £6K to put down and I realise If I paid that in full I would have nothing for contingencies. Can someone please help me so that I can calculate the “term”, “Option payment” any capital/contingent payment to lower the deposit using the rental and the management cost. Lease option calculations

What I know… Current market value is 120k, rental is 600pcm (tenanted) and mortgage was 90% residential with consent to rent.

I wish to take over the property lock stock and barrel but i’m struggling with the figures.

Thank you in advance.

Sean

Sean



Comments

Mark Alexander

9:48 AM, 1st August 2014
About 4 years ago

Hi Sean

I'm pleased to hear that your friend has consent to let, on what basis is that consent?

Why don't you just introduce your friend to a decent letting agent? See >>> http://www.property118.com/find-me-a-tenant/

I strongly suspect that your friends mortgage lender has consented to letting on a six or 12 month AST. Any other form of letting, especially a sandwich lease option agreement, could very easily put your friend in default of his mortgage. If this was discovered by his mortgage lender there would be a risk of his loan being called in and this could have devastating financial consequences for you both.

Lease options can and often do work very well for both parties on land and some commercial property transaction but rarely on residential property, particularly where a property is mortgaged.
.

Puzzler

19:46 PM, 3rd August 2014
About 4 years ago

Mark is right (of course) but I am puzzled as to your objective here. You would like to take over the property but you can't afford it. Lease options normally include payment of a premium rent so how do you benefit? If the only income involved is the rent then your friend is no worse than you to carry on as they are. If they are facing repossession and you are hoping to prevent it then you can either find someone who can afford it or arrange some kind of deed of trust to protect your money and help with the mortgage.

Sean Newington

23:10 PM, 3rd August 2014
About 4 years ago

Yes, I was hoping to gauge the responses on here as to how to proceed. Simply put, hes got to sell. I want to take the two properties over because I think I'd do a better job. Its investing I want to acheave. But I'd do my research first and be a better LL. If I Had the cash up front I could make this a good deal. Thank you both.

Mark Alexander

7:34 AM, 4th August 2014
About 4 years ago

Reply to the comment left by "Sean Newington" at "03/08/2014 - 23:10":

Hi Sean

Why has he GOT to sell?
.

Puzzler

21:00 PM, 6th August 2014
About 4 years ago

Just guessing, two possible reasons - divorce - in which case you cannot help unless you can simply buy the property - or repossession - when you can help by bailing them out but it would be difficult to decide who gets what share. I suggest that unless it's someone you're close to (e.g. a sibling or partner) you walk away and save up for a property in future. If it is someone you are close to, and you do help them, get a deed of trust drawn up as to who has what share then you are protected if you fall out in future. Even that route I would not recommend, there is no greater reason for people to fall out than over a deal such as this. They are getting a 5% yield so whether or not you would make a better landlord it's unlikely you would make more money.


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