This will provide you with a basic understanding of why and how a lease-with-option-to-buy (one of the two methods previously described to purchase goods or equipment with a high selling price) can be a great way to buy and sell a model whose price is normally far beyond the means of the average person!
Let's begin by breaking down the term 'lease-option'. Although the term is used as if it were one contract, it is essentially two entirely separate agreements within one contract.
1. We have all heard of leasing or renting. If you don't currently own your home, then you probably signed a rental or lease agreement for the house, condo or apartment where you live, or have entered into an agreement like that in the past.
2. The option is the guaranteed choice of purchasing the subject of the agreement --- in this case, the locomotive or Mega-Trolley---at a future date based on a price you and the seller had previously agreed upon, under the terms that you had previously set in the beginning.
When you buy a house, you need to come up with a large down payment, complete credit & financial forms, assume closing costs, paid "points", fees, etc. It can be overwhelming! In that regard, a lease-option benefits both parties involved.
The theory behind a lease-with-option-to-buy is simple: Lease a locomotive or expensive trolley model with the opportunity but not necessarily the obligation to buy . The other relevant, and related, method --- easily confused with that --- is the rent-to-own agreement.
Both agreements have benefits for both the Buyer and the Seller, which are outlined below.
Benefits for the Buyer:
• A Low down payment places the model in your hands
• A portion of the monthly lease payment is used to reduce principal owed on the locomotive or tram
• No credit check (usually or necessarily).
• Payments are usually lower than borrowing money from a bank or putting the transaction on your credit card
• The model may appreciate in value, but the price is already set in the agreement.
• There are no additional costs or fees.
• By the time you exercise the option, you can obtain a personal loan and purchase the model outright, and you will have done so with no money down and no financial qualifying.
Benefits for the Seller:
• No Broker commissions.
• No closing costs or additional fees.
• Monthly rental revenue.
• No worries about storing or maintaining the model.
• Perhaps no tax consequences (check with your CPA on this)
• Option payments and down payments are non-refundable.
• And, best of all, the Seller has the ability to sell an object which is only optionally needed (no one needs a model) at a high selling price. Risk is minimal and the huge customer base is far beyond what you had previously envisioned.
For both Buyers and Sellers to be successful with rent-to-own or lease-option agreements, a few things need to happen:
• Buyers and Sellers need to get connected.
• Both Buyer and Seller must agree on the terms of an agreement that benefit both sides.
• Both Buyer and Seller must sign a binding agreement.
• In the case of a Lease-Option agreement, the Buyer must execute the option before the expiration date.
The key points of any lease option agreement are:
• The amount of the down payment and option price.
• The length of the lease/option term.
• The selling price.
• The amount (or percentage of the rent) that will be used to reduce the outstanding principal (the amount still owed).
• Who has the responsibility and the authority to upgrade, modify, or maintain the model.
Down payments on a lease-option can vary tremendously. Remember, higher is not better. The goal of this transaction is to Encourage and Enable the Buyer to finally buy and operate the locomotive or mega-trolley of his dreams.
All these terms are classically negotiable. If you are not good at this barter-and-trade business, you might want to enlist the aid of a friend who is skilled at this, or even a hard-nosed gimlet-eyed businessman or attorney to actually perform the hard bargaining for you.
The most common practice is to pay a down payment which does not cripple the Buyer, but acts as a very strong motivation not to disappear during the period of the Agreement. Possibly, a similar payment is made at each anniversary of the Agreement afterward. All of these payments goes toward reducing the principal, and, in most cases, is non-refundable (But remember, everything in the Agreement is negotiable !) . Generally, this down payment negates the need for a security deposit.
This is the kicker of the lease option - The Buyer has the opportunity to accumulate the equivalent of a down payment over the course of the lease. The Seller keeps the money if the Buyer defaults on the lease, or fails to exercise the option, and gets the locomotive or traction.
The most typical and beneficial length of lease-with-option is four years. A shorter period does not allow a reasonable equity to accrue from the payments made during the Agreement. This is important because the more equity the Buyer owns in a model, the greater the pride of ownership, and the less the chance that he will need more money down or qualifying restrictions when he finally pays the balance off.
Typically, a Rent-to-Own agreement obligates the Buyer to go through with the transaction, although even here, the Buyer keeps the payments already made.
The selling price must benefit both the Buyer and the Seller. For the Seller, he must consider the future value against the costs incurred if the locomotive or model were to be sold by a broker or auction house. Remember, auction houses traditionally charge the Buyer on the order of 20% of the final selling price as a fee for selling an object, AND --- recently --- a 12% fee has been charged to the Buyer, in addition. These costs must be taken into account when the total cost of the transaction is calculated.
The Buyer must understand that price negotiations are not usual in lease-option agreements. This is where a lease option is appealing to the Seller. As the Buyer, you are able to agree on a higher sale price, counting on paying off much of the principal of the Agreement in the coming years. For the Seller, this is appealing because they it is highly unlikely that they could sell at the top dollar price for cash in this economy.
Deciding on what percentage of lease payments reduces the principal is tricky. The range can spread between 10% to 100%. This is the second area of negotiation after the selling price. Now the Buyer can always pay additional monies, above and beyond the lease payment, for which 100% would come off of principal. One common practice is to allocate 50% of the lease payment to reduce principal or act as added down payment.
The difference between a lease-option and a rent-to-ownl agreement is very evident with maintenance issues. The lease-option requires the buyer to assume more responsibility when it comes to repairs and maintenance. But once again, both parties must come together and agree on limits. Generally, the Buyer is responsible for all repairs and maintenance for the duration of the lease.
Upgrades and improvements are quite common in lease option agreements. Everyone benefits when the Buyer invests in upgrading (increasing value) the home he is leasing. The home's value can only increase. Handling improvements should be agreed upon. Normal limitations include advance notice and, if a do-it-yourself project, evaluate the skill level required for competent results.
The best lease-option deals occur when both parties are happy. It is very important to have a proper agreement set and ready to go.
It is also advisable, although not mandatory, to have an attorney prepare the Agreement that ssets all this in motion. Most praticing attorneys have a file on their permanent hard disc that they can access and print with minimal effort. There may also be copies of different model agreements available on-line to you, the modeler. Always wanted that $75,000 live steam locomotive you saw advertised on Discover Live Steam ? This might be the pathway to fulfill that dream. We also want this seen as an effective but rarely-utilized marketing tool for manufacturers and advanced modelers to facilitate the sale of their products --- just like in the automobile business. Good Luck ! ERRORS AND OMISSIONS EXCEPTED ; Save those important questions for your Attorney . We do not pretend to do more than stimulate the hobby and facilitate the fulfillment of dreams, not to give legal advice or guidance .
Tuesday, September 25, 2012
Monday, September 24, 2012
HOW TO BUY (OR SELL) That Model Trolley, Tram or Locomotive AND Enjoy It Now, Even Without $50,000 (USD) In Your Pocket (or actually sell it, if you're the Manufacturer)
PART TWO :
We had just asked ourselves the following question : How many cars do you think General Motors would sell if they ran an ad in Car & Driver magazine that displayed their beautiful new Chevrolet Impala, quoted its purchase price as $39,000, and expected that the Buyer would pay the full purchase price in cash at the time of sale ? Answer : vanishingly small and approaching zero, as an engineer or mathematician would say ! Yet model manufacturers or other Mega-Scale model owners must think that people have the disposable income to mail in a check for a comparably-priced model locomotive or hand-made giant trolley model. In this economy, it is likely that sales income wouldn't even repay the cost of the advertisement !
We will let both manufacturers and modelers in on a technique that structures the sale of those beautifully-crafted, high-priced products, even in a tough economy, to people without the immediately available cash available.
It's called (or, more properly, they're called) Lease-Option and Rent-to-Own, and, if you haven't already guessed, is based on cleverly-structured, common real estate transactions, although we are beginning to notice that even furniture retailers are beginning to advertise "RENT TO OWN" in large banner ads on their storefronts.
The difference between the two techniques is small, subtle, and significant :
In a Rent-to-Own situation, the Buyer can terminate his payments in the middle of the transaction, and his only obligation (normally) is to return the model in good working condition at pre-determined times, but he is otherwise NOT obligated to finish paying for the model. The manufacturer or other Seller gets to keep all the money that the Buyer paid up to the date of that point, if the modeler-Buyer walks away before the end of the Agreement period.
In a Lease-Option, the Buyer can change his mind about the purchase (by not exercising the OPTION) BUT the modeler-Buyer may nevertheless be obligated to pay the principal (the balance of the payments). Of course, in that situation, the nice part for the Seller (model manufacturer) is that he gets to keep all the payments that the Buyer has made along the way PLUS sue to collect any balance of payments, and still gets his locomotive or tram back.
Legal considerations make the distinction between the two subtle, but there are important differences, which is why we urge both the modeler and any manufacturer contemplating this approach to consult an attorney-at-law in their home states (as state laws differ) OR, if appropriate, a solicitor or barrister in their own country.
Contract
The biggest difference between a Rent-to-Own agreement and a Lease-with-option-to-Purchase (Lease-Purchase) agreement is that in a lease-purchase agreement, the landlord and the tenant enter into a contractual relationship that obligates the tenant to purchase the model at the end of the lease.
In a rent-to-own or lease option situation, the tenant has the option to purchase the property at any point in the lease period. In general, both circumstances require the tenant to make a down payment at the beginning of the lease and then pay a certain amount above the monthly rental price, all of which goes toward the down payment at the time of purchase.
Walking Away
In order to walk away from a rent-to-own or lease-option agreement, the Buyer forfeits his down payment and the money paid above the monthly rent. However, in a lease purchase agreement, if the tenant decides he does not want to purchase the house, he has broken his part of the contract and may face legal ramifications that obligate him further. The contract is a legally binding document in which the Owner-Seller agrees to sell the Modeler-Buyer the model for a set price, and in return the modeler agrees to buy the model by the end of the lease. Breaking that contract means that the Buyer may incur additional obligations and expenses.
Preparation
Due to the legal differences between a lease option and a lease purchase situation, the level of preparation may differ slightly before making an agreement. In both instances, you should work with a real estate lawyer to make sure that both sides are clear on the terms of the agreement and to create an exit strategy.
Much more on these fascinating but little-known approaches that facilitate these not-for-cash approaches to buying the model-of-your-dreams will be continued in tomorrow's BLOG .
P.S. If that contemplated National Traction organization gets organized and running, their attorney could draft a version that's fair to both parties, at a nominal cost to members instead of at the $500 per hour that is being billed these days by attorneys.
We had just asked ourselves the following question : How many cars do you think General Motors would sell if they ran an ad in Car & Driver magazine that displayed their beautiful new Chevrolet Impala, quoted its purchase price as $39,000, and expected that the Buyer would pay the full purchase price in cash at the time of sale ? Answer : vanishingly small and approaching zero, as an engineer or mathematician would say ! Yet model manufacturers or other Mega-Scale model owners must think that people have the disposable income to mail in a check for a comparably-priced model locomotive or hand-made giant trolley model. In this economy, it is likely that sales income wouldn't even repay the cost of the advertisement !
We will let both manufacturers and modelers in on a technique that structures the sale of those beautifully-crafted, high-priced products, even in a tough economy, to people without the immediately available cash available.
It's called (or, more properly, they're called) Lease-Option and Rent-to-Own, and, if you haven't already guessed, is based on cleverly-structured, common real estate transactions, although we are beginning to notice that even furniture retailers are beginning to advertise "RENT TO OWN" in large banner ads on their storefronts.
The difference between the two techniques is small, subtle, and significant :
In a Rent-to-Own situation, the Buyer can terminate his payments in the middle of the transaction, and his only obligation (normally) is to return the model in good working condition at pre-determined times, but he is otherwise NOT obligated to finish paying for the model. The manufacturer or other Seller gets to keep all the money that the Buyer paid up to the date of that point, if the modeler-Buyer walks away before the end of the Agreement period.
In a Lease-Option, the Buyer can change his mind about the purchase (by not exercising the OPTION) BUT the modeler-Buyer may nevertheless be obligated to pay the principal (the balance of the payments). Of course, in that situation, the nice part for the Seller (model manufacturer) is that he gets to keep all the payments that the Buyer has made along the way PLUS sue to collect any balance of payments, and still gets his locomotive or tram back.
Legal considerations make the distinction between the two subtle, but there are important differences, which is why we urge both the modeler and any manufacturer contemplating this approach to consult an attorney-at-law in their home states (as state laws differ) OR, if appropriate, a solicitor or barrister in their own country.
Contract
The biggest difference between a Rent-to-Own agreement and a Lease-with-option-to-Purchase (Lease-Purchase) agreement is that in a lease-purchase agreement, the landlord and the tenant enter into a contractual relationship that obligates the tenant to purchase the model at the end of the lease.
In a rent-to-own or lease option situation, the tenant has the option to purchase the property at any point in the lease period. In general, both circumstances require the tenant to make a down payment at the beginning of the lease and then pay a certain amount above the monthly rental price, all of which goes toward the down payment at the time of purchase.
Walking Away
In order to walk away from a rent-to-own or lease-option agreement, the Buyer forfeits his down payment and the money paid above the monthly rent. However, in a lease purchase agreement, if the tenant decides he does not want to purchase the house, he has broken his part of the contract and may face legal ramifications that obligate him further. The contract is a legally binding document in which the Owner-Seller agrees to sell the Modeler-Buyer the model for a set price, and in return the modeler agrees to buy the model by the end of the lease. Breaking that contract means that the Buyer may incur additional obligations and expenses.
Preparation
Due to the legal differences between a lease option and a lease purchase situation, the level of preparation may differ slightly before making an agreement. In both instances, you should work with a real estate lawyer to make sure that both sides are clear on the terms of the agreement and to create an exit strategy.
Much more on these fascinating but little-known approaches that facilitate these not-for-cash approaches to buying the model-of-your-dreams will be continued in tomorrow's BLOG .
P.S. If that contemplated National Traction organization gets organized and running, their attorney could draft a version that's fair to both parties, at a nominal cost to members instead of at the $500 per hour that is being billed these days by attorneys.
Sunday, September 23, 2012
"I LOVE THAT MEGA-SCALE T⁴ *** MODEL, BUT HOW CAN I POSSIBLY AFFORD IT ...
"I LOVE THAT MEGA-SCALE T⁴***
MODEL, BUT HOW CAN I POSSIBLY AFFORD IT ...
... especially in this economy ? I saw it for sale on an on-line forum, but the seller wants $23,000 for it and I don't have that much cash, nor could I justify spending it even if I did have it!"
[The same complaint is valid for a giant scale live steam locomotive, but I'm restricting this discussion to focus our goals on acquiring electrically-powered Mega-Scale T⁴ models .]
In response to that question, let me ask you another question :
How many cars do you think General Motors would sell if it displayed the beautiful new Chevrolet Impala in an ad that ran only in Car and Driver magazine, quoted its purchase price at $39,000, and expected the full purchase price in cash at the time of sale ?
If you consider all the aspects of that question in the previous paragraph and considered them from a business viewpoint, you'd realize pretty quickly that the Systems Approach would insist that it's a Marketing Issue, and a solvable one !
Not many people outside the Plutocracy go down to the local shopping district with a spare $39,000 in their pocket, after having read the latest Car and Driver, with the intention of stopping in at their local Chevrolet dealer, plunking down that money, and driving off in their latest model ? We'd all still be walking or driving horse carriages .
If you couldn't do that for an automobile right out of the dealer's inventory, how much less possible would the purchase of a house be ?
Finally, how immeasurably less possible would be the purchase of a coveted, but unnecessary, "toy"? What can we -- the folks encouraging the growth of this hobby -- do to solve this problem?
We're going to suggest some solutions that just might have that Mega-Scale T⁴ streetcar model leaping off the seller's shelves and running through your special work tomorrow. Sound impossible? Stay tuned for solutions to this seemingly insoluble problem in tomorrow's BLOG .
NOTE : The solutions will apply to small and large manufacturers, start-up builders, retailers, and garage-based craftsmen, also .
*** T⁴ : Traction, trams, transit, and trolleys
Thursday, September 13, 2012
SIZE MATTERS , BUT NOT NECESSARILY THE WAY YOU THINK
Okay , we agree that darned few T⁴enthusiasts have the space, the time, or the funds to build and maintain a one-fourth scale (3 inches = one foot) trolley or tram, like Gordon Hatch did in those spectacular photographs displayed in previous blogs .
Let's consider less expensive, more attainable branches of the T⁴ hobby , namely, the gauges that lurk a couple of steps down in scale :
1. The scale of 1:6 (2 inches = one foot) illustrated by the industrial scale Parry's People Mover --- large, but clearly not impossible . One can utilize all the PlayScale (Barbie doll and GI Joe action figures) as passengers and street figures ;
2. A perennial favorite , 1 inch to the foot (1:12) , supported by the whole infrastructure of doll house and miniature interests --- very nice, indeed ; AND ...
3. the scale that we have skated by several times in passing , (1:16) or ¾ inch = one foot , represented ...
a. in the United States by Jimmy Sparkman, of the East Penn Traction Club in Philadelphia. Of interest, and perhaps the key to the aura of authenticity : Sparkman is, if we are not mistaken , an employee of the 12-inch-to-the-foot South Eastern Pennsylvania Transit Authority (SEPTA) , AND ...
b. in Great Britain by the majority of tram modelers .
Very impressive craftsmanship and striking models in that entire genre . There is an interesting subculture involved in producing and collecting beautiful ready-to-run die-cast automobile models in that scale, together with a few supporting cast of scale model auto mechanics and other automotive miscellanea, that would make an excellent back-story for the trolleys and streetcars .
What we particularly like about Jimmy Sparkman's infrastructure is his supporting framework of aluminum (I believe they are) girders forming a very attractive trestle and roadbed structure --- realistic without the burden of cinder ballast, using the girder bridge approach that Sparkman uses .
It might even open up hands-across-the-sea cooperation with the British branch of the hobby , not a bad idea at all .
Comments are encouraged and welcome .
Let's consider less expensive, more attainable branches of the T⁴ hobby , namely, the gauges that lurk a couple of steps down in scale :
1. The scale of 1:6 (2 inches = one foot) illustrated by the industrial scale Parry's People Mover --- large, but clearly not impossible . One can utilize all the PlayScale (Barbie doll and GI Joe action figures) as passengers and street figures ;
2. A perennial favorite , 1 inch to the foot (1:12) , supported by the whole infrastructure of doll house and miniature interests --- very nice, indeed ; AND ...
3. the scale that we have skated by several times in passing , (1:16) or ¾ inch = one foot , represented ...
a. in the United States by Jimmy Sparkman, of the East Penn Traction Club in Philadelphia. Of interest, and perhaps the key to the aura of authenticity : Sparkman is, if we are not mistaken , an employee of the 12-inch-to-the-foot South Eastern Pennsylvania Transit Authority (SEPTA) , AND ...
b. in Great Britain by the majority of tram modelers .
Very impressive craftsmanship and striking models in that entire genre . There is an interesting subculture involved in producing and collecting beautiful ready-to-run die-cast automobile models in that scale, together with a few supporting cast of scale model auto mechanics and other automotive miscellanea, that would make an excellent back-story for the trolleys and streetcars .
What we particularly like about Jimmy Sparkman's infrastructure is his supporting framework of aluminum (I believe they are) girders forming a very attractive trestle and roadbed structure --- realistic without the burden of cinder ballast, using the girder bridge approach that Sparkman uses .
It might even open up hands-across-the-sea cooperation with the British branch of the hobby , not a bad idea at all .
Comments are encouraged and welcome .
1:16 Scale model of the Stockport 20 by Marsden
Photo courtesy of John Prentice of the Tramway and Light Railway Society
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