Will This Work?
Hi all, I have not been posting here for long but reading some of your posts I can see that you have a lot of knowledgeable investors.
Well, I'm from Chicagoland, IL and I'm a licensed Realtor. My plan is to purchase homes conventionally and then sell them via lease option.
This is what I'm thiking...
1. Run an Ad in the newspaper, advertising 'Rent to own, 10K down' to select better canditates.
2. Find a home they like on the MLS.
3. Purchase the home using conventional financing, where now I can obtain investor loans with as little as 5% down. (average prices are 200K, so 10K would be a good downpayment) Make sure that the tennant buyer pays at least $100/mo more than my mortgage payment.
4. Cash out. Win-win. Tenant purchases a home and I make some money.
Are there problems with my plan? A critique will be appreciated.
Thanks,
VK
VK,
This scenario will only work for people with TRASHED credit. If someone has 10k, why would they pay you 10k as an option fee if they can buy that home instead? Only a person who has that kind of cash but credit scores below 620 will be a potential target. And I don't think you will find too many of those people, and even if you do - why would you want to rent to a person who has a terrible credit score? If they default, the mortgage payment is YOUR responsibility..... And don't forget RE taxes as well.
I am a Realtor too and I think it will work. The truth is there are people out there with money who went to one bank and were told they can't get a loan and then they look for alternatives. In Florida we have alot of imigrants who are unable to get a mortgage due to lack of work history (since they are paid under the table) Good Luck
I don't think my idea will work just anywhere, because not every 200K home will rent for 2K/mo.
I know there is a neighborhood not too far from where I live with 200-220K homes, which are renting for 1600-1900/mo. Why do people pay this kind of money for rent? I don't know, but it does happen.
I do agree though, that it might be tough to find tennant buyers with 10K option consideration... but will see.
A couple of questions:
1. Would using your position as a Realtor to show prospects homes on MLS, when in fact you plan to buy them (using your "inside information" as a professional be considered an unethical practice (similar to flipping); or, even a license endangerment in your state?
2. What would keep your prospect from attempting to deal with the current owner to get a better lease option deal?
3. If this works why couldn't every non-Realtor invester do the same thing? MLS lists can be obtained from a variety of sources.
3a. Are any of you investors using this method to get your deals?