Hello folks, Can I borrow your brain for a sec? I read through Mark`s book "Investing in Rent-to-won property" twice, but still can not figure out the following three questions. 1) based on page 122, the monthly option credit is 20%. I am wondering if it is possible for us to choose other numbers, say 15% or 10%? what are criteria to choose this number? 2)same page, lease rate. when we calculate the lease payment, Mark uses lease rate in the range of 0.8%-0.95%. Why pick this number in this range? and what factors will effect us to choose the big number or small number?
3) Mark recommends us to sign two contract with the renter/buyer. one is lease agreement, which will be shown to the bank to prove there is a tenant living there and offering me a positive cash flow, the other is occupancy agreement, which is the contract between investor and tenants. It doesn`t matter how to use these two agreements, they are a binding documents between renter and investor. Both agreements have a common item: how much the renter will pay per month, which is called rent in lease agreement and called occupancy payment in occupancy agreement.
Let`s take the number as example for simplicity. House purchase price: $210K with 20% down, 4% rate 35 yrs amortization. property tax $120 per month, insurance cost $35 per month. Let`s wipe off all other costs. Based on the book, the occupancy payment is lease payment. Let`s choose 0.85% as lease rate, then the occupancy payment will be $1785, but based on the theory of the buy-and-hold, the monthly PIT cost will be $895, take the other factors in, the reasonable market rent will be roughly $1200 - 1300.
so my question is are we using $1200 - 1300 as rent when we sign lease agreement and using $1785 as occupancy payment when we sign occupancy agreement? If we use different nubmers, then which one will be legally accepted? The renter/buyer will not give us a hard time to justify if we put different numbers in the different agreement? just because one is for bank, the other for us and renter. Don`t forget both docs are legally binding us. All the clauses in them apply to us.
Any comments are welcome!!!
David
3) Mark recommends us to sign two contract with the renter/buyer. one is lease agreement, which will be shown to the bank to prove there is a tenant living there and offering me a positive cash flow, the other is occupancy agreement, which is the contract between investor and tenants. It doesn`t matter how to use these two agreements, they are a binding documents between renter and investor. Both agreements have a common item: how much the renter will pay per month, which is called rent in lease agreement and called occupancy payment in occupancy agreement.
Let`s take the number as example for simplicity. House purchase price: $210K with 20% down, 4% rate 35 yrs amortization. property tax $120 per month, insurance cost $35 per month. Let`s wipe off all other costs. Based on the book, the occupancy payment is lease payment. Let`s choose 0.85% as lease rate, then the occupancy payment will be $1785, but based on the theory of the buy-and-hold, the monthly PIT cost will be $895, take the other factors in, the reasonable market rent will be roughly $1200 - 1300.
so my question is are we using $1200 - 1300 as rent when we sign lease agreement and using $1785 as occupancy payment when we sign occupancy agreement? If we use different nubmers, then which one will be legally accepted? The renter/buyer will not give us a hard time to justify if we put different numbers in the different agreement? just because one is for bank, the other for us and renter. Don`t forget both docs are legally binding us. All the clauses in them apply to us.
Any comments are welcome!!!
David