Singing Pig

So you have a property which has been valued at £75,000.

Lets say you have five people who want to take the property on a option basis. They want different option periods ranging from 1-5 years.

Lets say they all have a deposit of £3,000.

At what price would you set the option to purchase at and why?

Thanks

No takers on this?

Not enough info John.

What did you pay for it?

What is the rent?

 What is the cash back (if any)?

What do you want to make out of the deal? This one is pretty important :-)

If you give a short option does that conflict with any ERC you may have?

What can they (realistically) afford? I dont put too much emphasis on this as the idea is that they improve their situation and hence what they can afford today is not neccisarily what they can afford in the future.

etc etc
 

Make your self a spread sheet (I would let you have mine but it is a mess and only I can work it out) and enter in the variables and see where the chips fall.

Good luck


 

ps. Sorry, Jon not John.

Hi Griff,

I will be remortgaging the property to £63,750.

The market rent is £450

Cash back- not sure how this fits in.

For the sake of argument lets assume there is no ERC.

Just looking to see how some one would approach this depending on whether the option was 1,2,3, 4 or five years.

Thanks  

Hi Jon,

 I assume you paid 63750 it.

I assume mortgage payment is 350 pm

I assume you are going to charge 450pm rent and 3k option fee.

Now, I am not putting this through spread sheet just typing away. But my first impression would be.

1. 80000

2. 84000

3. 89000

4. 95000

5. 103000

I would credit them 50 per month on the 450 rent.

So the client would have about 5% deposit credits built up.

Rework it to get them up to higher deposit credits by increasing rent and increasing the credit you give back.

Have two spread sheets.

1. For your eyes only. This shows your profit and all your info. Set the profit you want and work the numbers back for PP, rent and fee. Gives you much greater negotiating power as you can at the push of a button totally rework the deal and end up with the same result.

2. To show the client. Show them how a change of option fee and rent with cash back can build them up a lovely deposit. Works very well and with this you can get them to the point at which they want to be at. Never show them your purchase price. It shouldnt matter but psychologically it does.

Dont be put off by giving a high cash back credit. If the client exercises the option then you cash in. If the client doesnt then you have still cashed in with the greater cash flow obtained than a straight rental.

Obviously one cannot pluck a pp out of thin air as, unless you know a dodgy broker and lawyer (!!!), the mortgage valuation would be a headache. So stay within the bounds of reality. I will probably get shot down in flames with my figures for year one and year two above but one mans floor is another mans ceiling.

Good luck Jon and if you want to see my spread sheets then pm me your e mail and I will send you a screen snapshot as I keep everything on google docs. But as I said, its not that clear except to me.

Cheers

Andy

Thanks Andy I paid

£38,000 and the property owes me (after refurb and fees) £50,000

Interesting, because in the current market I was wondering how you could reasonably set an option fee at £80,000 in year one when prices will more than likley be lower than this.

The same could be said for year two.

I guess having said this most options would be over 3-5 years anyway.

I appreicate the feedback Andy.

Thanks

Morning Jon,

I did say I would get shot down in flames. However, I did not know what you know (50k). But you hit the nail on the head and that most options are for a longer period. Also, everything is negotiable.

The species known a homo sapien is a very strange creature and yes, I do include myself in that. Even in these negative hpi times they are still afraid of missing the boat. They still want a house to call home. Depending on how you massage public data you can show any picture you want whilst based on total fact.

"over the last eight year period house price inflation has been an average of 12% a year" Now, depending where you live and type of property then that is a fact.Thats how I can justify 5% hpi I used previously.

Good luck Jon.

Andy