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Monday, November 28, 2005

Thoughts On Purchasing Filled Lease Options

Got back into town a couple days ago from a holiday trip and now I'm trying to catch up on everything...

I get emails occasionally from people selling properties that have tenants in them with leases with an option to purchase, usually 1 or 2 years out. Many times, the purchase price is fixed, but I have seen some that say the purchase price is the appraised value in 1 or 2 years, or whenever the option runs out. I was just thinking this morning that those types of options might be dangerous for the investor buying it today. Prices are at near-historic highs today and there seems to be a general consensus that the real estate market will crash soon. If it does, the investor could end up in a position of being forced to sell the house for less than he paid for it. If the market collapses, or even suffers a small decline, the appraised value in the future could be less than what it was bought for.

Just something to keep in mind. And, of course, if you don't believe the market will decline, this shouldn't give you cause for concern.

2 comments:

William said...

How about a Link Trade?
My site is
HOME EQUITY LOANS

Empty Spaces Inc. said...

its a good idea if you
1. buy in a area that isn't likely to experience a significant drop
2. there's enough spread between what you pay and what the tenants exercise price is
3. you can get a long-term loan atleast 7-10 yrs[although the difference between that and a 30yr interest-only isn't much nowadays on investment loans]
4. you cashflow or atleast breakeven

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