Hi all this is my first post…
I have a property that is negatively geared which I am thinking of selling via a lease option. I have never done this before but have purchased Ricks wrap pack and been to a few VFA meetings.
I was wondering if someone could give me a sanity check if the following is OK.My position is this:
Purchased the property 3 years ago for $320,000
It is currently rented at $330 per week
Most recent sale of property 2 doors up, which is for the sake of the exercise is much the same sold last year for $416,000. So applying about 8% (3% CPI + 5% growth) growth in the past year leads me to think it is worth about $450,000 on the open market today.My proposed Lease option is this:
Lease option mark-up 10% = $495,000 sale price.
Lease option fee of 1% of the agreed option price ($4950)
2 year option with an option renewal fee of .05% of the agreed option price ($2475) for a further 2 year option.
Lease costs of $475 per week with $25 per week going towards the purchase price.
Purchaser pays all outgoing.
All money forfeited if the option is not taken up or renewed.Any feedback on my numbers would be greatly appreciated.
Thanks
R
Randallc
I am not familiar with Rick’s LO style, but if it would normally rent for $330 pw and you want to charge $475, this is $145 pw extra in rent, but you only give a $25 pw credit. So it seems very expensive to me. Plus the option fee and renewal fee.
This may be compensated by the high growth (projected) in the property.
It sounds good from your point of view, but may be hard to find someone to accept this deal.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
I agree with Terry,
My concerns are:
->How you are valuing the property with the prop. slump
->$120 per week goes into a bottmless pit? Charging way too high for ‘option’
->Very high difference in rents Vs owenership (though this is always a problem with higher priced property on Wraps/ LOs).
->Second option fee is way too excessiveI wouldn’t accept this deal, and my guess is you probably wouldn’t have too many tennats accepting this deal. A fear is that if you hold the property for longer than you expect are you going to let people who aren’t as good quality as you would like into the place? Will they trash the place because they feel they are getting ripped off?
It seems here you pushing down on the greed button way too much, and you will get burnt if you aren’t careful (vaccancies really can be a killer – I know). So don’t burn yourself and potential tennants. The deal has to be a ‘win-win’.
Rgds.
Lucifer_auHi All
I have been looking at starting out in wraps but the feedback I am getting from some people is that lease options are the way forward.
You two have done a few lease options, would you mind giving us an example of some of the figures you have used on a recent l/o to show us what you think would be a fair deal.
Cheers
Delboy
[cap]
Thankyou all for the feedback. As I stated I have not done this before and need to put a stake in the sand so to speak. (guess it was a bit high)
How about this…
Option price $480,000
Option fee .05% of the purchase price $2,400 for a 2 year option.
Option renewal for a further 2 years .25% of purchase price $1,200
Lease costs $450 with $50 per week going toward the purchase.Summary of changes per feedback
Reduced option fees by 1/2
Reduced purchase price by $15,000 (3%)
Reduced lease payments by $25 per week
Doubled contribution toward purchase.thanks for the next round of feedback in advance.
R
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