L/O Help Is This Correct
Found a property that is in the lis pends stage of foreclosure in NYC. The current owner does NOT want to lose the property. He owes, 237,500 on the mtg. and is 5 months behind. His payments are 2082 p/m @ 9.9% interest. he owes 2k in taxes. The last appraisal was in 11/02 @ 265k. I estimate FMV to be around 300k. Current owner is willing to sign deed over to me, where I would refi and pay off all existing debt on the property. Due to my lower interest rate I will be able to lower his monthly payment to about 1800 p/m. After a 3 year term he would have the opportunity to re-purchase the property at 15k more than I laid out. Does this sound correct? any suggestions. I have never done an L/O before.
Thanks for all your advice.
John 
3 years to net $15,000, or is there a decent cash flow built in as well? If not, sounds like you may be shorting yourself.
Sorry I did not mention I will be able to cash flow about 2-300 p/m. I really wanted to know if this is the correct way to structure this deal...
tks
again
Now that sounds better!
As for structuring, sit tight, as I am sure the experts here will chime in shortly...
Hey,
I am not 100% sure on your numbers, but here is what I figure:
1) The guy currently can't pay $2082 per month for his house.
2) The $2082 is only Prinicipal and interest and does NOT include INSURANCE and PROPERTY TAXES: PITI .
3) If you refiance, your payment would be around $1500 for Principal and INterest, but does not include Insurance or Taxes.
4) The current home owner would pay $1800 a month.
If that is correct:
1) You have to include ALL your expenses to figure out if you are making money. I would think once you include all the numbers, you do not have a positive cash flow.
2) I would find it hard to believe that the make or break for this guy is $300 (the difference between what he is paying and what you are offering). In a few months, he is going to be behind on his payments to you.
Several things....
If he cannot make the payments now, I would bet he will not be able to make the rent payments.
Put an ironclad default clause in the lease, if he is late 10 days, he is in default, and the l/o is void and you will evict him.
I do lease options all the time, I doubt that he will be a good tenant.
[addsig]
personally, lease/purchase's are great but would never, ever, ever, ever do a lease/back. IMO the typical home owner in distress has become more savy to what are considered homeowner rights and the lease option, no matter how great its structured, does in fact have some holes in favor of the old homeowner and now T/B..just my 2cents..
regards-pat
jcapozucca:
The biggest problem I see with this is that you have to use your own credit. This deal would be great if you didn't have to use your own credit. Your personal credit is vital, and should be used intelligently. Plus to have to wait 3 years for 15k is to long for me. Even with cash flow. The longest I would wait for 15k on deal using my own credit is 30 days. Plus the other investors are right. This will be a bad tenant that won’t pay you on time, and I you will have to evict him and make the mortgage payment during this time. Having just gone through with evicting a tenant it suck to go from positive 200 to negative 2000. Don’t forget that you are also losing out on 3 years of appreciation while he is earning it at your expense.
This sounds like a typical Brooklyn flip of the sides scam:
Buy letting you "control" this deal, the broke A$$ seller accomplishes more than you can believe. First he manages to move the loan liability to your name, ultimately saving his credit. Then he writes in stone that he lived 3 months mortgage free without any pitfall. Then he again stays in the house perhaps rent free for the next 6+ months. With small children on board often even longer. And, if he knows how to file chapter 7 or 11 bankruptcy just before the marshal come to evict him, he can stay another 6 months and can cost you over 30K in non covered mortgage payments.
With the money you put to cure his mortgage, you may be under a good 40K in time when you decide to file your own chapter 7 bankruptcy protection.
Instead, offer the seller to share the equity. Offer the seller to did you the house in exchange for the agreement to pay him out the half of the profit once you fix and sell his house. Excuse me. Your house. Or, in a multi offer scenario, offer him less in cash and at the time when he hands you the key from the hose and on the way to U-Haul truck.
If my scenario saves your newbee A$$, call me a partner or don't but do remember to mail me about 10 grand! ( You can do more if you like). Half up front and half .. yes, you can make the donation to my church instead of paying me that half ever. (That's another one of Brooklyn's scam gigs, used when you want to avoid paying someone's back). " "Don't worry, l'll give a donation to your church"..."
And for the first five grand, instead of paying me direct, invest in The Deal Shop project, which should turn your 3K into 30K by the end of year, then once you make your money, you can pay me the whole 10K in full this time. Of course!
[ Edited by omega1 on Date 01/11/2004 ]
I once heard that the rule of thumb to follow is to never rent/lease-option a house back to Seller that you are buying from. The are too many bad things that can come from this. For one, there is way too much emotion involved with the property. It is better to go cut and dry! -corey
Thanks for everyone's input it has really helped me out alot.