If I Buy A House For 90k????
If I purchase a rehab for 90k, 2k to close and 10k to fix up. I lease option the property for 2k down and apply $100 month to down payment. When do I get my invested money of 12k back? when I close the final purchase? If this is true, when I get into larger more expensive homes, will I then have more and more of my out of pocket money tied up for years? Maybe I'm missing something
You could re-finance before you L/O. Or just have a HELOC on the property for other ventures.
Quote:
On 2004-02-07 19:47, frazierp wrote:
If I purchase a rehab for 90k, 2k to close and 10k to fix up. I lease option the property for 2k down and apply $100 month to down payment. When do I get my invested money of 12k back? when I close the final purchase? If this is true, when I get into larger more expensive homes, will I then have more and more of my out of pocket money tied up for years? Maybe I'm missing something
Use OPM if you do not like using your own. You can borrow from friends, relatives, banks, or get partners. I use hard money lenders and get 100% of the funds needed to do the deals. I have to be selective because it is expensive to pay 12 to 15 % interest and $3000 in points plus inspection fees and high attorney fees but it is worth it to keep from having a partner. Larger deals will require more money so that is why I stay with smaller deals for now at least.
Good LUCK and Thank You
Hope this helps some
Ted Jr
Hate to sound like a newbie but what is a HELOC?
If I refinance before L/O, will they loan on what the house is now worth or what I paid for it before rehabb. If I re-finance will I not be adding additional cost (closing) to my OOP money? I have read several books on L2P but none have explained about your up-front cost but just say this is a great way to make money. I am starting to challenge this thinking
frazierp,
You did not mention how much you're selling the property for when the option is exercised.
In a typical lease option situation, you have three income streamsThe upfront option considerationMonthly cash flow from your rentalBack-end profit when your buyer exercises the option at your sale price.Taking your example, you have a total of $102K invested in your property with $12K out of pocket. If you give a two year option to purchase at $115K, collect $3500 option consideration up front, collect $200 monthly cash flow, then another $25K ($115K - $90K) at settlement when the buyer exercises his option, then your total income from this deal is $18,900 ($3500+$2400+$25000-$12000). Though you had to wait two years to recover all of your initial out of pocket investment, you got a 157% return on your money. Even if the buyer decides not to exercise the option, you get half of your out of pocket cost back in the first two years and a chance to lease option again at a higher sale price.
Rent credits reduce your total profit, but you increase your profit margin to begin with to compensate for the rent credits given.
The Creative Investor Encyclopedia has quite a few definitions for abbreviations and acronyms. To get there, click the MyTCI tab at the top of the page, then click My Tools.
[ Edited by DaveT on Date 02/08/2004 ]
Home Equity Line Of Credit (HELOC)