Hi All,
I`m new to the forum here (not new to reading it but first time posting) and been studying the RE world off and on for a few years but have never made the move for that first deal. I have an interest in Lease options and have a potential deal that can be made and I`m looking for some input as there could be a few tricky points. I have a family member that has some very close friends that are trying to sell their home and have been for quite some time. The home is located in the Edmonton area and is a bit overpriced at the moment in my opinion (compared to comps in the area are 5 - 10k less). Details are as follows:
1000 sq ft 2 Bed 2 bath with single attached garage, 35 yrs old, new paint, flooring etc. Had a third bedroom in the basement at one point but they removed it, can easily be replaced as it just needs a wall and a door. I think the third bedroom is a must as it opens the door for more buyers and should increase the value. Listed with a realtor for last 6 months, listing about to expire, price: $299,000. If the realtor sells it they would take $290 ish to net them approx $278k after fees. They owe $270,000 on the home and would like to put some money in pocket to put towards new home. They currently do not reside in the home and are living with their parents. If I was able to get them to hold it for 12 months (don`t think they would go any longer as they want to buy a new home) I was thinking the following:
Purchase Price: $285,000 (in 12 months)
Their Monthly expenses are currently approximately $1700
We lease option for 12 months to someone at the following:
Purchase Price: $295,000 plus 5% market adjustment for increase in value over 12 months so final price is $309,750
Lease Option Deposit: $7500
Rent: $1900 (avg rents in the neighborhood are $1600 ish)
Rent Credit: $200 per month which equals: $2400 after 12 months
Cash Flow: $200 per month which equals: $2400 after 12 months
Total due at signing, $7500
Final Numbers: $309750 (sale price) - $9900 (deposit and rent credits) = $299850
$299850 - $285000 = $14850 profit
Total Profit after 12 months:
$14850 + $9900= $24850
Here are the some of my selling points and issue with this deal: They homeowners get out of an $1800 monthly mortgage payment for a year and when the house sells in a year, they are still getting more than they will get now. That and the fact that they can put that $1800 per month they are saving away for a bigger down payment on their next house (they are living rent free and with parents now). That’s totals $21600 plus the equity in their house. Right now if it sells for 290k they have 8k after RE fees, where in a year they would actually have 8 – 10k more. The only thing that worries me is the short lease term and what if the tenants walk at the end of the term and we were unable to sell and they did not want to hold any longer. Would that strain our relationship with family? That and I don`t want to hold this young couple up from buying a new home. Because it`s my first potential deal I was thinking of maybe partnering with someone who can show me the ropes and help out with the "paperwork" portion and then splitting the profits. That would give me the opportunity to be more neutral. I think its a good deal as it allows them to get out of their payment, not have to worry about the home for a year, save some more money, build a bit more equity, etc, gives someone else a chance to get into a home, and allows me to make some money. What do you think? Any input is appreciated. If I can make it work would abyone be interested in partnering?
I`m new to the forum here (not new to reading it but first time posting) and been studying the RE world off and on for a few years but have never made the move for that first deal. I have an interest in Lease options and have a potential deal that can be made and I`m looking for some input as there could be a few tricky points. I have a family member that has some very close friends that are trying to sell their home and have been for quite some time. The home is located in the Edmonton area and is a bit overpriced at the moment in my opinion (compared to comps in the area are 5 - 10k less). Details are as follows:
1000 sq ft 2 Bed 2 bath with single attached garage, 35 yrs old, new paint, flooring etc. Had a third bedroom in the basement at one point but they removed it, can easily be replaced as it just needs a wall and a door. I think the third bedroom is a must as it opens the door for more buyers and should increase the value. Listed with a realtor for last 6 months, listing about to expire, price: $299,000. If the realtor sells it they would take $290 ish to net them approx $278k after fees. They owe $270,000 on the home and would like to put some money in pocket to put towards new home. They currently do not reside in the home and are living with their parents. If I was able to get them to hold it for 12 months (don`t think they would go any longer as they want to buy a new home) I was thinking the following:
Purchase Price: $285,000 (in 12 months)
Their Monthly expenses are currently approximately $1700
We lease option for 12 months to someone at the following:
Purchase Price: $295,000 plus 5% market adjustment for increase in value over 12 months so final price is $309,750
Lease Option Deposit: $7500
Rent: $1900 (avg rents in the neighborhood are $1600 ish)
Rent Credit: $200 per month which equals: $2400 after 12 months
Cash Flow: $200 per month which equals: $2400 after 12 months
Total due at signing, $7500
Final Numbers: $309750 (sale price) - $9900 (deposit and rent credits) = $299850
$299850 - $285000 = $14850 profit
Total Profit after 12 months:
$14850 + $9900= $24850
Here are the some of my selling points and issue with this deal: They homeowners get out of an $1800 monthly mortgage payment for a year and when the house sells in a year, they are still getting more than they will get now. That and the fact that they can put that $1800 per month they are saving away for a bigger down payment on their next house (they are living rent free and with parents now). That’s totals $21600 plus the equity in their house. Right now if it sells for 290k they have 8k after RE fees, where in a year they would actually have 8 – 10k more. The only thing that worries me is the short lease term and what if the tenants walk at the end of the term and we were unable to sell and they did not want to hold any longer. Would that strain our relationship with family? That and I don`t want to hold this young couple up from buying a new home. Because it`s my first potential deal I was thinking of maybe partnering with someone who can show me the ropes and help out with the "paperwork" portion and then splitting the profits. That would give me the opportunity to be more neutral. I think its a good deal as it allows them to get out of their payment, not have to worry about the home for a year, save some more money, build a bit more equity, etc, gives someone else a chance to get into a home, and allows me to make some money. What do you think? Any input is appreciated. If I can make it work would abyone be interested in partnering?
