Original message
| Steve
  |  "Amount of payment when buying "subject-to""
, Sat 21 Oct 20:15 
Hello Everyone!!
When buying "subject-to" what is a good measure to determine if the payments are not too high to resale. I have learned that all prospective deals are not deals unless the payment is low enough to make a profit on the spread.
Any thoughts on a way to determine if the payments are right would be appreciated.
Steve
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Replies:
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| steve
| "Thanks.. Just what I needed!!" , Sun 22 Oct 13:11
Thanks!!!
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| steve
| "Thanks.. Just what I needed!!" , Sun 22 Oct 13:11
Thanks!!!
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| lynnhahn
Moderator
| "Re(1):Amount of payment when buying" , Sun 22 Oct 11:28
If you are going to sell on lease-option then you need to have a good idea of what the properties in your area rent for. You should be able to get above market rent on a lease-option. Our personal goal on l/o is to have $150 per month cash flow. We have l/o properties with as much as $400 per month positive cash flow and we have many with less, but we average around $150.
Don't necessarily get caught up on the monthly cash flow because this is only one of your income streams. We have one property with a negative cash flow of around $200 per month. Most people would cringe at this kind of negative cash flow, but let me explain...
We bought this $200K+ house via lease purchase. The problem was that the seller had a fifteen year mortgage which made her payments too high for your standard lease purchase, however we sold it on a one-year l/o with $10,000 down (option consideration). We put $2,400 in our reserve savings account and $7,600 in hip national bank. Now that negative cash flow doesn't look so bad does it?
When doing l/o transactions you have to analyze your three primary profit centers
1. Up front option consideration
2. Monthly cash flow
3. Back end profit
Sometimes you will be able to make a home run and profit on all three, but many times you will not. My point is that if you get solely hung up on any one, you may be overlooking some great deals.
If you are going to sell via owner finance, like an agreement for deed, then you should be able to do the numbers rather quickly on your financial calculator (you do have one don't ya  ) As long as you can get more interest than you are paying you should be able to make money. Give it a try with your calculator. You will see that even with a small spread in the price and a few percentage points spread on the interest you will be okay.
When looking at monthly payment spreads for l/o or owner finance we never allow for vacancies because if we have a tenant buyer move out we know that we will be putting a new tenant buyer in very quickly with a large down payment that will more than cover the missed rental income.
Hope this helps!
Lynn 
Those who say it can't be done are usually interrupted by others doing it!
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