BiggerPockets

Hi Kendra,

First thing that makes me wonder is why the current owner wants to get rid of the property. If it was a personal cash issue he would not be willing to do a lease option. I would find out the reason for a quick sell.

A lease option is a great way to create equity or money to be placed toward the purchase at the end of the lease. If the current owner was to take a lease option he would most likely make less monthly income from the deal and suggest the property might be distressed.

There is the possibility he's looking to trade up (1031 Exchange) which would be a good thing but DO your research on this property.

First, is this a deal:

Rent: $2100
Expenses: $1050
NOI: $1050
Price $125,000
Down: $25,000
Loan: $100,000
Rate: 6%
Term: 30 years
Payment: $600
Cash flow: $450/month: $5400/year
Cash on cash return: $21.6%

So, OK, its a decent deal.

But, factors two and three are demand and value. Is there strong demand for units like this? Or are there plentiful similar units nearby with "for rent" signs in their empty windows. Are there other similar units nearby for the same price?

Curt makes a good point about lease option vs. lease purchase (do you have an option to buy or are you actually making the purchase). But in neither case do you actually own the property. So "leveraging the equity" is not an option. That's not something that's easy to do anyway, unless you've owned the property (i.e., have a deed) for at least a year. Even then, you're probably looking at a LTV of no more than 70%.

You're going to want your monthly lease payment to the owner on the order of the $600 payment. You will want a significant credit (all of it, if possible.) When you actually buy the place, you're still going to have to come up with a loan. So, be sure you understand how to do that so you don't end up losing the place because you can't complete the deal.

You can certainly lease the place and then rent out all the units. The lease gives you possession, but doesn't mandate you live there. Assuming you avoid any clauses in the lease that would require you to live there. This is called a "master lease option" when referring to multi-families. You have one lease with the owner, then sublease the individual units.

As for your question about having the units constantly leased out, that's up to you. That's really independent of the master lease. Its up to you to keep them filled. You may not have legal ownership of the building, but for all practical purposes you have day-to-day responsibility as if you did.

Try it Kendra, if he say no you can still offer a higher sum.

I´m also here in Cleveland area searching for a option lease/owner financing and found actually on owner of 5 units. He will do this lease, $1,650 gross today and only $62,000 price one unit vacant (+$300 monthly when rented). I can pay $11,000 down but I dont understand this lease option. When he rent out his house the owner receive $1,650 per month, when I make this lease option he receive only $450 a month and I got all the rents from the other tenants. Thats not a win win for the owner, why he offer this lease option then?

-Uwe