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I would like your advice or posts on the following deal I am being offered. I am the seller.
The buyer wants to give me $10,000 to cover closing costs which will be around $13,000 for me. I have my townhouse listed at $208,000 and he is willing to lease at $1,400 per month for two years, pay 1/12 of the taxes, the assn fee and then buy the house at the end of the two years for $195,000 ($205,000 - $10,000 he puts down). If he defaults then I keep the $10,000. In case the bank finds out and demands mortgage due then he is going to sign a lease too - for me to show the bank that he is just renting.
Good or Bad Deal for me in your opinion? Should I make him go up on the downpayment? I pay $1,600 a month to the bank right now for mortgage, mortgage insurance and taxes so I would be out $200 per month during the 2 years.
I am not desperate to sell. I am in a townhome community where the builder has new ones for sale and will be building new ones for awhile so I think it will take a long time to sale me townhome unless I take this particular deal - of course I could be wrong.
All advice would be appreciated
Looks pretty one sided to me. You take all the risk, you go out of pocket every month to help pay his way, and he locks you up tight for two years with no gain for you.
Let me get this straight. The buyer wants to give you $10k as an option fee, ALL of which is to be used as his down payment when he closes, AND he is offering you a verbal rental agreement which will leave you out of pocket $200/month, and you are willing to consider it when you are not desperate?
Forget it. Walk away.
Or counter like this: $10K option fee, nonrefundable, for a 24 month option to buy. Rent of $1800/month of which $200 will be credited to the downpayment so long as the payment is made on time (not even one day late).
Of course, he WILL sign a lease - no "I'll sign if the bank finds out" stuff. He WILL also sign an option agreement, which will be a SEPARATE DOCUMENT FROM THE LEASE.
Such an agreement would be much more fair. You can then negotiate the amount of the NONREFUNDABLE (translation: you keep it and credit it toward nothing) fee. If the fee drops, then you should negotiate in an escalator that will allow you to capture some of the capital gains that your property might show over the next two years.
About the Author: Jim Locker is a technical guy who has done a lot of real estate investing and landlording. The experiences he writes about and advice he gives are either first hand, or in answer to specific questions posed by others. He is commonly known as jiml8 around the internet.
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