Lease options...many questions

[Debbie]

Hello,

I have come up with several questions on structuring lease options and would greatly appreciate any advice. Here goes...

-many investors allow their tenant buyers to exercise their option at anytime in the term. But if I have a fixed mortgage then I will incur a mortgage payout penalty. Do you pass this cost onto the buyer via the contract, or take an open mortgage at a less favorable rate?

-how do you determine rent and monthly lease option payments? Market rent on a single family home is typically negative cashflow.

-do you collect a security deposit with your lease in addition to the option deposit?

Thanks,

Debbie

 

[markl]

Hi Debbie,

While you do not want to dissuade your tenants from optioning early they have to understand that your incur extra costs to do it. I try to get my exact same % return I would have gotten if they had went to term. Of course this is less $$ but it gives me the money to reinvest sooner.

This is determined by how much of a down payment your tenants provide and the return your looking for on your capital and the desirability of your property. We use $750 - $850 per $100k of purchase price for rent. This works on a tenant first deal but sometimes not so well on property first deals.

We are in Ontario so therefore cannot do that anyhow but our deals in Alberta we have not. I would be interested in hearing from other people doing LTO`s in Alberta to see if they do.

Regards,