guys/girls
i have 2 questions to ask:
1) if you have a tenant on a lease option, when they decide that they wish to exercise this option and apply for a conventional bank loan, can they use the repayment history for the lease option as a form of “credit rating history” for the banks purposes?
2) as the tenant is not the legal owner of the property until they exercise the option, meaning the landlord can still access the capital gain, is there a safe limit to go to in terms of how much capital gain the landlord shoul access?
e.g.: if the agreed option price is say $230,000 within 25 years, and the price they have to pay if they wait 24.5 years until they exercise this option is $190,000, would it be safe to say that the safest maximum amount of capital growth the landlord should access be $190,000? (because if you accessed more capital growth, say $280,000 for example as the growth over 24.5 years would be expected to be quite good, then if the tenant was due to pay $190,000 and you had a new loan of $280,000, then wouldn’t you have a shortfall in paying back the loan to your bank?)
thanks in advance for your thoughts [specs]
Nathan, Some answers:
1) Yes and no. The tenants could argue that this is a favourable purchase as they have an option on the property. If the LVR is less than 80% they should be able to get finance based on valuation at the time of cashout, not what they are paying – provided they have the income to service. On higher LVRs than this the mortgage insurers must be involved which makes it harder, but it may still be possible.
2) I think it is best to leave yourself a bit of a buffer and stay just below the clients strike price – otherwise you would have to pay money out of your pocket when they were to cash you out.
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! You deffinatly don’t want to go over the clients strike price, the risks are simply to great, for you and esp. for them.
Rgds.
Lucifer_auNathan,
your second point brings me to a more general question for the forum: how does the leasee either know or have assurance that their option payments (both fee and extra rent) are not going to vanish if the leasor stops paying their repayments and the IP is repossessed.
Of course it is to no benefit to the leasor to have their property repossessed, but as a leasee, they should have some protection or at least fallback in this scenario.
I was thinking of some sort of payment process through a neutral intermediary (eg solicitor) where the leasor sees that the rent payments are made, and the leasee sees that they are applied to the loan…. can anyone think of something better than this ?
Thanks !
Daniel.Hi dan_col!
You can have a clause added to the contracts that allows the purchaser (leasee) to have access to view your banks loan account. They are not allowed access the account – but they can request the balance etc.
Or you can just give them a copy of the loan statement every six months… I personally think you should do this even if they don’t ask for it as it shows you are upfront and honest – which should help you get the deal over the line.
Cheers,
GregGreg,
thanks for your reply.
The simplicity of your solution is great – for those leasees who are happy just to know the status of things.
Potential leasees could reasonably query the security of their investment (I would). Let’s say $2000 option fee + $100 extra per week for 2 years… this is up to $12,000 dollars that is unsecured… have you found that some leasees bawk at this (or not), and if so, what can be done about it ?
Cheers.
Daniel.
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