All Topics / Hotch Potch / lease options – scenario for comment

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  • Profile photo of rakkyrakky
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    @rakky
    Join Date: 2004
    Post Count: 26

    I understand there is a system of doing LO’s by firstly having a lease option with the owner of a property and then turning around and giving a lease option to your client. Is anyone familiar with this.

    The major attraction to this system I guess is the ability to carry it out with very little money (?) upfront.

    Are there property owners who would be attracted to this idea?
    How does a sale work if your client decides to excersize their option? It seems to me on the surface of it that there would be 2 lots of costs to pay – once lot for your client when they buy and one lot for you when you buy from the property owner.

    Rakky ;P

    Profile photo of family.manfamily.man
    Member
    @family.man
    Join Date: 2004
    Post Count: 12

    A way around would be to have your LO with the 1st vendor modified to allow you to assign your option to another party for a agreed price.

    So on settlement you can assign your LO to the third party to purchase directly from your provider and you get the difference between your price and your vendors.

    Profile photo of rakkyrakky
    Member
    @rakky
    Join Date: 2004
    Post Count: 26

    Ok, I started this thread with the idea that I had read about doing a lease option with a vendor and then onselling with my own LO.I have this afternoon put down on paper a scenario and so I will put it to you learned bunch. It is probably very simplistic and I am sure you will have suggestions and facts pertaining to it, but do me a favour and read it all thru and try to comment thoughtfuly as I am really trying to understand this.

    You locate a property owner who will LO to you on the following terms –

    The LO allows for another party to be assigned your option. (which will be your client in the end)

    The agreed valuation at the time the LO commences is 160,000.
    The agreed option price is 185,000
    The rent they currently achieve is 160pw, you offer them 190pw. Of that extra $30pw, $15pw of it will be put against any future sale of the property.
    You pay to them a call option of 2,000. This will also be credited against any future sale.
    The date the call must be made by is 3 years.

    You locate a person who would like to take on an LO (for all the reasons bla bla). The terms are –

    Their weekly rent will be 220pw.
    $15 credited towards future purchase.
    The agreed option purchase price is 200,000.
    They pay you a call option of 2,000.
    This will also go towards purchase.
    The date the call must be made by is 3 years.

    At the end of the 3 years, your client excersizes thier option and it looks like this for you –

    OUT

    Call option fee to 1st vendor 2,000
    Rent 28,000
    deposit for purchase 1,000
    purchase price 185,000

    bal 225,133

    less rent credits
    & call option fee 4,340

    bal 220793

    IN

    Call option from client 2,000
    Rent 34,320
    Purchase price 200,000

    bal 236,320

    less rent credits
    & call option fee 4,340

    bal 231,980

    Bottom line 20,320 net profit

    As I understand this scenario this afternoon, if the client decides not to excersize their option or finds themselves unable to do so, there is very little in it left.

    As another note to this kind of activity, would it attract some kind of GST?

    Thankyou.

    Rakky ;P

    Profile photo of family.manfamily.man
    Member
    @family.man
    Join Date: 2004
    Post Count: 12

    I am looking to do the very same thing.

    But it may be harder to find a vendor willing to LO to me than I thought.

    No one seems interested in this kind of deal.

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