Lease With Option / Multi Family
Hello, I am a new investor. I have an opportunity to lease option a 4 Plex
4(2 bedroom 1 bath) Price $140,000.
Giving $5,000 in consideration. Lease is
$1800 per month with $500 per month for 3 years toward purchase price. When exercising option purchase price will be
$117,000. My current credit score is 6603. Forecast in 3 years is 687. I have good income but only have $5,000 to put down. Any advice would be welcome.
First of all congrats on putting a deal together!
Can you give a little more information? You say that your lease is $1800 a month. What will your rents off of it be? Can you talk them into any lower option consideration? what is the FMV of the property? Now I have not done any deals this way yet but from what I have read, three years seems too short, can you extend it further like say 7 years? Also what is the appreciation like for that type of unit in your area?
Joe
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If you do what you have always done, you will get what you have always gotten. Success can't occur whithout taking risks, just be sure to take calculated, informed risks![ Edited by joefm26 on Date 05/02/2004 ]
Greetings Rosewood1
First off, $1800 per month seems a bit high to me -- even with $500 being credited back. Your credit’s not bad, and there are "investor" loans out there that will go 95%-100% CLTV. And payments on 140k loan would be somewhere around $1,000-$1,200 (without tax or insurance).So, it might be worth your while to check with some loan brokers to see what they could do for you. A good place to start is the "lenders" link on this site.
Also, to better evaluate your deal, post some more information -- the value of the property, what kind of rent you could expect to pull from the units, any repairs costs, etc. I’m sure a lot of people will offer up some good ideas for you.
HTH
Thanks for your advice! FMV is $161,000.
Currently rented for $475 each unit.
It does need repairs mostly cosmetic
paint and carpet. DXW
Greetings Rosewood1
Here’s just one example of what might be done with a property like this….
Offer the seller 140k, but with a 3% "buyer credit" for repairs. This would represent a $4200 credit to you.
Get a new 80% loan (so you have no PMI), and have the seller carry back a 15% second -- so you’re only putting 5% down (80% LTV and 95% CLTV). That would be $7000 for your down, and you should figure at least another $3000 or so in loan, escrow and title fees. But try to get as much of the loan fees as possible put on the back end.
This example would require $10k total from you, but with a credit of $4200. So your effective out-of-pocket would be $5800. If you can get the loan fees put on the back end, it could be less.
Your new loan of $112k would have payments of roughly $700-$750 (6.5% to 7% interest). If you look around, you can get ARMs for much lower interest than that.
Depending on how you structure the $21k second with the seller, it would have payments of around $150 (8% interest) -- for a total payment under a $1000 per month. Add your tax, insurance, contingency for vacancy, maintenance, repairs, etc, and you could still have a nice positive cash flow.
As I said, this is just one example of many ways to approach this. But hopefully, it gives you some ideas to start playing around with.