Quick Turn Lease Option Deal

[dleischner]

Good afternoon,

I wouldn`t mind some experienced peoples advice on the following deal.

Appraised Price = $310K
Selling Price = $300K
The vendor wants $30K on top of their existing mortgage which they are willing to carry for 2 years and 2 months. They have allowed me 2 months to find a lease option tenant. I will be giving them $500 to hold the property for 2 months and then $20K upfront and $10K on the back end when I cash them out.

The mortgage payment and taxes are roughly $1800/month and I`m sure I could get $2000/month from a tenant buyer.

The house is 3 years old, in a good area of town and needs nothing for repairs (has high end appliances too). All the landscaping is also done.

There`s not a lot of equity in the deal ($10K + 2 years of property appreciation), but it should be some good cash flow for the next two years.

I don`t think Ron LeGrand would like the deal, but what are your thoughts?

Thanks

Dean

 

[Debbie]

[quote name=`dleischner` date=`Oct 27 2009, 12:27 PM` post=`69372`]
I don`t claim to be experienced but here is what I see.

You are putting in 20k up front...but I think it will be very difficult to find a tenant buyer with 20k plus to put down. So you may be out of pocket cash up front.

Possibly the seller would take back a second mortgage for you on part of this 30k to reduce your cash out of pocket. Or take more cash on the back end and less up front.

Debbie

 

[GaryMcGowan]

You will be hard pressed to find a tenant that can give you more than your cost of 20k up front. You are only looking at $200 a month cash flow. You would be in a better position if you can defer the 30k or reduce it all together. Maybe reverse the payment schedule. 10k now and 20k later. How much do you see the property appreciating over the next two years?

On the other hand if you can get into the property for nothing and make $200 a month you are defiantly on the right track. Speaking from experience with lease options and as Ron mentioned. The more skin in the game your tenant has the better. On a 300k home we would look at a min $2,400 lease payment with $480 as a credit every month.
If you get those numbers then your are in the game!

Good luck.

 

[dleischner]

I already tried that route, it`s $20K up front, or there is no deal (they need the cash for the down payment on their new home). Do you think it`s unrealistic to get a 6.5% down payment from the tenant buyer?

 

[jseib]

You can find tenant buyers who will give 6.5% down but the more you need down the shorter the list of potential tenants gets..

 

[RedlineBrett]

QUOTE (dleischner @ Oct 27 2009, 01:11 PM) Do you think it`s unrealistic to get a 6.5% down payment from the tenant buyer?

Yes very unrealistic to expect even a 5% down payment from a T/B

If your prospect has 5% down and can legitimately afford 2,000 per month they can almost definitely buy something on the open market and wouldn`t have need for your services... unless they cannot qualify for a mortgage due to terrible credit or another black mark. And if that is the case do you want them as a tenant?

Your goal should be to find those that can afford a higher rent but only have a small amount to put down. 2 or 3%.

I think you need to work a little harder to find a seller willing to do a deal on the terms you need.

 

[Jeffrey2144]

QUOTE I think you need to work a little harder to find a seller willing to do a deal on the terms you need.

Sorry Dean but I agree with Brett on this one -- Keep looking!!!

You don`t want to settle or cheat the system as you might find yourself "out of the game" before you even start. I know that sounds like an odd statement as your deal appears to be a reasonably good one -- BUT that was BEFORE the days of Ron LeGrand. Aim for a property that offers at least 20% built-in equity right from the start and you won`t have to face the wrath of a "spanky, spanky" from Ron.