Expensive Home For A LO - Does It Work?
I am farily new to real estate investing but I have done a couple of lease option deals in the lower price range - under $150k.
I have a chance to do a LO on a home that is valued at $250K which is in the upper price range in the Green Bay area. I am scared that this is just too expensive of a house to find a tenant buyer as the average house price in Green Bay is around $130k.
What has been the experience of the group in doing lease options for houses in the upper price range in your community? Are they hard to find tenants for? Should I walk away from this deal?
thanks 
Peter
I don't do L/O but why would someone want to pay high payment for rent, if they could buy one with the same payments. In this market all most anyone can buy a home. Sounds like low cashflow if any.
But what are your terms on the L/O?
Lance
The way I normally work a LO is to cover the owner's payments (mortgage, taxes and insurance) and charge only a small amount above this cost to my tenant/buyer. Where I make money is with the lease option down payment and optioning the house for a discounted price from the seller and charging a fair market price for what the home will be worth when my tenant buyer purchases the home in a year or two.
With a house this expensive, I just do not think I will be able to find a tenant who wants to rent to own instead of just getting a mortgage outright. But then again, I may be wrong which is why I am asking the forum members what their experience has been doing LOs on expensive homes.
Peter
Peter-
I have the same question. I have an appointment with an owner tomorrow morning. It is a new house (built it but never moved in; now paying on 2 mort.) and is a very affluent neighborhood. Now I'm not talking millions but several 100's of thousands. He is willing to do a L/O and just told me on the phone that he wants $3000/month. Now, of course that WAS on the phone so who knows. Anyway, we'll see what happens and I'll post it!
I'll try to give you a personal experience that may help you. I have a "friend" that does very well income wise, should qualify for a 300k mortage. However, he has a tax lien from some old tax liabilities, which he is paying on a payment agreement with the IRS. Now, he would be happy to look at a higher priced lease option to give him a chance to pay off the lien, but still move into a nicer house, since he can't get a regular loan that high so long as the lien is on his credit. You just may find someone similiar in your area, looking for a nicer house, but circumstances prohibit them from getting a conventional loan. How about your advertising - Can you get a generic ad out quick enough to test the market for this price range before committing on the deal?
You can probably make a lot more with more expensive property.
First just find out how much equity the house has and how low the payments are. If the owner wants top buck for the property don't do it.
But if he's desperate and wants debt relief, you can "guarantee his payments" and just offer very little above of what he owes. I don't have any experience except besides looking and studying deals, but if you get the house down to a great deal you will not have a problem finding someone who would not take up on a LEASE TO OWN home that's worth $250k FOR $215K.
I think this just depends on how motivated the owner of the house is. If he's in trouble, and you can help him then you can find a buyer.
Show buyers the benefits of Lease/Option rather than just BUYING.
1. They won't get stuck in something they don't like, they have the OPTION to buy.
2. They can try out the neighborhood and the house.
3. While they're living in the house, they can start gathering their down payment. (Set up an installment plan - more monthly cashflow and you can deduct what they give you from the price of the home at the end).
4. There are higher income people with credit issues. Lots of these people would love to take a home that they can afford on a lease/option and take the time to get their credit straightened out.
There's no doubt there's people but you probably want to have a list first.
This works for everyone... If they have enough to write a check they can still just check out the house without getting themselves into something big w/ a lease option.
If they don't have $ for a downpayment, you can make an installment plan for them. (more monthly cashflow) "You can provide beautiful housing to ordinary people."
Just some ideas! I'll give Ron Legrand credit for all that. :D[ Edited by pino on Date 03/18/2004 ]