Guidance Needed On Lease Option
I wasn't sure if this should go in the beginners forum (since I'm new at this game) or the lease option forum but I feel it would fit here better. I'll apologize for this being so long before I even get started...
I spoke with a broker a few days ago who told me about a house that is going to be forclosed. He has spoken with the bank and they would sell it for 64k (the house sold 2 years ago for 78k). At first, I wasn't interested but he said he had a person who wanted to buy the house but couldn't afford it now and would be willing to lease option it for 2-3 years. He went on to say that the person would do the repairs to the house (mainly cosmetic) and the lease option would be written so that the future owner would be responsible for all repairs to the house while they are renting. At the end of 2-3 years, the future owner would buy the house for 80k and has asked that we put 1k towards closing. The future owner also wants $500 when he moves in to put towards fixing up the house. The house would produce a positive cash flow during the 2-3 years the renter is in there.
To me, this sounds good but I don't know enough at this point to know if I should jump on this offer or run away from it. At the end of 2-3 years, if the renter walked away, I'd still be happy owning the house since it's in pretty good shape and in a fairly good area.
If we did decide to go for this and gave the future owner $500 towards repairs, could we write that off on our taxes?
Oh, and the broker said the selling price could probably be adjusted so we would have no money out of pocket at closing. Instead of buying it for 64k, we'd pay around 70k to avoid putting money down.
So, what do you think? Take it or run? Thanks
This is worth discussing. What kind of pos cash flow will it generate? Also, I think you could push there option price up. I would also look at shorting the bank on the 64k. Work the numbers until your comfortable with the deal. If no one moves on the numbers move on. No money out of pocket is a must.
I,too. think it's worth discussing.
One question would be what are the circumstances of the prospective tenant buyer not being able to afford it "now"? Is something going to change during the option term for him?
I don't like the idea of you paying the tenant buyer for moving into the house (i.e. the requested $500.00). You should be collecting an option fee from this tenant buyer. I would guess that you will waive this fee in lieu of him completing the repairs. That's your call although I wouldn't do it that way.
The name of the game is not to buy a house for $70K and sell it to a tenant buyer under a lease option three years later for only $80K. What is the home appreciation in your area? What does the home appraise for now? What do the Comps say? What are the current rent rates in your area for like properties?
You need to do the numbers and then offer the broker a price based on that research. I think giving the tenant buyer money to move in is ridiculous.
Keep going. Tell us more and I'm sure some of the Pros on this site will help guide you on this deal. Good Luck,
Dave
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"Opportunity is missed by most people because it is dressed in overalls and looks like work." (Thomas A. Edison)[ Edited by dealfinder on Date 06/24/2004 ]