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Pauline, Real Estate Pro in Midtown East, New York...

my tenant wants to buy my midtown condo 450sf for 400,000 but close in two years is this a good deal?

Asked by Pauline, Midtown East, New York, NY Fri Oct 26, 2007

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11
I would not do it. You have no idea of where the market will be in two years. I am willing to bet that in two years in NYC it will be worth quite a bit more than it is today. Don't short yourself, wait it out. Let them rent it you want but I say no finance no romance.
0 votes Thank Flag Link Wed Jan 14, 2015
This is a rent to buy situation and those normally always work out best for the landlord. Get an option fee added to the base rent each month. This needs to be placed in an escrow account and saved for the renter to use at the time of purchase as part of the down payment. Get this all in writing as well as the purchase price he will pay and any other details about the future sale. Also add what will happen if he does not purchase in 2 years.
0 votes Thank Flag Link Sun Dec 12, 2010
This is an unusual structure but not in and of itself prohibited. The deal must address the occupancy prior to closing (I assume your tenant wants to remain in possession). What is the purpose of this extended closing period? I assume it is to permit the tenant to accumulate the necessary downpayment, but bear in mind that you (both) risk market exposure, but yours is greater. The tenant has a stop loss at 10% downward prices, as the typical contract deposit of 10% is walked away from typically when prices drop below that. You, on the other hand, have no such protection, and if market conditions increase 15% (unlikely, but possible) then you will have the lesser end of the bargain. Proceed carefully here.
Web Reference: http://www.jerryfeeney.com
0 votes Thank Flag Link Sun Dec 12, 2010
This may be a problem depending on the guidelines of the bank. Typically, FHA has a minimal square footage requirement which I believe to be 600 sq ft. Since Fannie, Freddie and FHA are the main guarantors left in the market place this deal may not get financing if it fails to comply with the required guidelines. You should provide the tenant with the sq ft info and have them check with a lender as well as you should personally verify if a loan will be approved for a co-op unit that is 450 sq ft.
0 votes Thank Flag Link Wed Dec 8, 2010
Maybe make the offer contingent on what the property appraises for in the time prior to the property closing escrow? Does this make sence?
0 votes Thank Flag Link Sun Aug 3, 2008
This is not typically done in Manhattan. You should consult a real estate attorney to see if a contract of sale 2 years out is even enforceable, in New York. Would the buyer place his 10% deposit in escrow for a full 2 years?

It does not sound like a good deal to me but you have not given many details.
0 votes Thank Flag Link Thu May 22, 2008
Pauline,
Another thought..
Before making a decision: I would contact a lawyer and I would also recommend you check the current market price for your condo, you can do this by looking here and also via the NY times and REBNY or more accurately by having a few agents come by and bring you some comparables, while reviewing your condo ,let them tell you their opinion of it's current value.
Please feel free to drop me an email so I can let you know what brokerage I have decided to associate myself with..
0 votes Thank Flag Link Wed Oct 31, 2007
Only if you are paid for the option and a contract is drawn up by a real estate attorney. It is like selling a "call" in stocks. The strike price is 450K.

Since you are risking that the price will go up and you will lose money (have to sell below FMV), you need to be paid for that risk. What the price should be I don't know. What is the condo worth now?
0 votes Thank Flag Link Fri Oct 26, 2007
Do It! 9 times out of 10 the buyer for a purchase option backs out! Definitely have them pony up 1% for the option to buy, or more if you think they can do it! Your tenant is banking on appreciation! If the property values do not produce any equity when its time to close then they will certainly back out and you will have the option fee as consideration. If the appreciation is there and it is significant, then you can certainly bet that they will be closing or assigning the contract. (a.k.a. Flipping the contract) I work with many investors and they actually prefer to have tenants who want to buy the home. The tenants tend to take better care of the property! If you see appreciation going through the roof then pray that the tenant makes a default payment and X the deal! At which point you can still keep the option. Be sure to have a lawyer draw up the contract with specific stipulation regarding late rents and option fees etc.
0 votes Thank Flag Link Fri Oct 26, 2007
From what I hear, the Manhattan market is hot. If prices continue to appreciate, will your condo be worth $400,000 in 2 years? Is your tenant giving you any money in escrow to seal the deal? A lot can happen in 2 years. Realtors generally don't like to delay closings for more than 60 days. Check with a local Realtor to determine the current market value and then speak with an attorney regarding putting together a contract so you are covered if things go wrong.
Web Reference: http://www.dianeglander.com
0 votes Thank Flag Link Fri Oct 26, 2007
Pauline,
Hard to say, I would really need more info...Please give us more details
Are you saying they want to rent with an option to buy?
Are they giving you a downpayment now?
Do you want to have the rental income?
The way things have been in recent years the value of property keeps going up...
0 votes Thank Flag Link Fri Oct 26, 2007
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