Best way to structure potential buy and hold deal

[Shane Newell]

Hi all. I've recently come across a non-listed property in one of my target areas that fits my criteria. Property rents for $2,600 without a single vacancy over past 12 years (owner showed me leases at least). Ask price is $185k and owner plans to list on MLS in June if he doesn't sell on his own. Owner currently owns ~$100k on his mortgage, so I think seller financing would be out. Thinking of pitching lease option or subject to with second lien held by seller as well (not sure if this makes any sense).

Wondering what the community might recommend pitching.

Thanks!

[Steve Vaughan]

Good numbers for a buy and hold in my area.  Rent of $2600 on a sales price of $185k would cash-flow nicely here. So it's a house with a 12-yr tenant?  Probably in need of paint and floor coverings.

A lease with option isn't a bad strategy to get in cheaply. Make sure you can cash them out and exercise. A wrap (sub 2 with note for equity) has DOS risks and is probably at a higher rate than you could get with a new mortgage, but I've done them on the both sides pre-DF and Safe Act.

Might offer one price with a LO, one with seller-financing, a third with getting a mortgage yourself.  Price falling with each option.  I do mine this way in a Letter of Intent @Shane Newell.  

[Shane Newell]

Awesome input @Steve Vaughan! I was kind of thinking along those lines, but am yet to do any of these.  I currently have 12 units, but typically buy for cash, rehab and refi or work a cash back after close side agreement into the mix.  I really like the property and numbers, but don't want to lock-up another $50k to get another mortgage at the moment.

Much appreciated!

[Shane Newell]

As a follow-up, how do you determine lease payment to offer and would a portion of monthly payments be counted as principal towards eventual 2-3 year purchase? Thinking of paying $3k upfront for the option. Thanks!

[Steve Vaughan]

I usually go with market rent minus a few hundred for my lease price.  You might be able to base it more on cash-flow it's now generating for the seller.  Give that plus a little, maybe.  

I ask my TB to pay the first couple hundred of costs that come up.  I don't sandwich anymore, just assign.  A lot of risk guaranteeing the performance of your TB over a long period of time.

In the new age of lease options, purchase credits aren't allowed.  A seller concession up to 3% of price is allowable.  Just don't let the concession reference any repairs to the home.  I've done some with a 'landscaping allowance' if the closing costs don't take the whole thing.  Concessions are noted on the option only, of course, not the lease.  The lease is completely separate from the option.

[Shane Newell]

Thanks again! I'll throw an LOI out there and see if anything comes of it.