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lease options / terms contract

Discussion in 'Property Finance' started by Elives, 28th Aug, 2015.

  1. Elives

    Elives Well-Known Member

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    I was talking with a friend and he said when he's done a terms contact and tried to get finance
    the bank only wanted to look at his bank statements to see the money coming in and thats as far as they looked.

    my question is with lease options where 100% of the option fee comes off the price of the property.
    when trying to get a loan can you count this as income / towards your serviceability? even know its not income as such? (you wouldn't be paying income tax as it's coming off the sale price it'd be taxed at the end when the property was sold and cgt would apply i'm 70% sure thats how it works)

    if the banks are only going to look at the bank statements and that's it. would this be doable then?
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    An option fee is a payment of capital and is one off so nope.

    But it sounds like you are talking about 'rent'. And yes that could be claimed as income.

    If the optionee is paying on going amounts off the purchase price each of these would possible be capital gains tax events.

    What happens if you sell an option for $4000 to buy a $100,000 house for $120,000 in 10 years with say $5k coming off the $120k purchase price each year.
    $4000 is a CGT event
    $5000 per year would be a CGT event too.

    Then when you get $70k in year 10 that would be a CGT event with amended tax returns needed for the previous 10 years.

    Tricky stuff and I probably have it wrong/
     
  3. Elives

    Elives Well-Known Member

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    i'm talking about the on going option fee. that comes of the purchase price. sounds like we're on the same page.

    my questions is though. those weekly option payments going into your account. can they be used as income to increase your borrowing capcity when you try and apply for a loan. the bank is only going to ask to see the bank statements? which will show constant money going in. as i said above my friend has done terms contracts and the banks only ask for 3 months bank statements and the payments going in increases his borrowing capacity. but they are p&i repayments. bit confusing..
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes the lender will just see that as 'rent' in most cases..
     
  5. Elives

    Elives Well-Known Member

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    now i feel a bit silly, does the lender ask to see the tenancy agreement? i'm assuming not
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    They want to see proof of the income. Where the property is not leased by an agent they will want to see a tenancy agreement and/or regular repayments into a bank account.
     
  7. Elives

    Elives Well-Known Member

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    if they wanted to see a tenancy agreement and it came in at say 200 per week. but the payments going into the bank account were 600 (400 for option) i would think this would be a problem.

    if how ever they'd just go off the regular repayments and not ask for a tenancy agreement i would think it would be good and they'd take the full amount as income
     
  8. tobe

    tobe Well-Known Member

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    I'd disagree, few lenders would only use bank statements to verify 'rental' income. It would need to be paired with a lease agreement in most cases.
    There are a couple of lenders who will verify payg income thru 3 months bank statements, perhaps your firiend mixed this up with rental income verification?
     
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  9. Richard Taylor

    Richard Taylor Mortgage Broker & Brisbane Buyers Agent

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    Agree with tobe a lender is not going to use bank statement solely to verify the 'rental' income.

    Cheers

    Richard
     
  10. Elives

    Elives Well-Known Member

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    so say etc the rent is 200 and shows 200 on the tenancy agreement, but 450 is going into the account for over 3 months. will they only count the 200? so the extra 250 is not counted as income? or do you write the 250 separately on the loan application? :s
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Why would they differ? If you are renting it for $450 surely you would want $450 on the tenancy agreement?
     
  12. Elives

    Elives Well-Known Member

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    you'd have different ledgers so you'd have market rent on the tenancy agreement and then the option fee on a different agreement
     
  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I've done several of these myself and always had the actual rent, including any credits, on the rental agreement.
     
  14. Elives

    Elives Well-Known Member

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    really i've never heard of that before. i was always told not to as the rental agreement is a stock standard agreement and it's best not to change it and it makes the eviction process easier. (i didn't think you could put the option on the same agreement).

    i'm not a lawyer mind you though, but many people have told me this is the normal way of doing it.
     
  15. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You would have separate agreements for the option, the contract of sale and the lease but there is no reason why the option contract cannot allow the reduction in purchase price based on what rent is paid.
     
  16. Elives

    Elives Well-Known Member

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    "but there is no reason why the option contract cannot allow the reduction in purchase price based on what rent is paid"

    you've lost me..

    you can have 1-100% of the option fee come off the purchase price.
     
  17. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You can charge rent of $450 pw with $200 coming off the option strike price.
     
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  18. tobe

    tobe Well-Known Member

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    I haven't tried in a long time, but I thought most lenders didn't like long term options contracts?
     
  19. Elives

    Elives Well-Known Member

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    how would they know about the option contract? i'm under the impression the lender doesn't know. same with terms contracts. as long as the banks getting paid they're happy. obviously it'll say in the loan docs you have to notify the lender of these things but no one does. i mean the lenders have a clause where it says you must notify them when you rent a property out.
     
  20. Azazel

    Azazel Well-Known Member

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    They usually ask for our monthly rental statements for loan applications, not sure what else they would take.
     
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