Buy with Land Contract / Sell with LO
I have a seller willing to do a 5 year land contract, and he has a tenant in place he really wants to help. The tenant has been telling him for the last 2-1/2 years that he eventually wants to buy the house, however the seller doesn't think the tenant can come up with any kind of a down payment. The seller made it clear he wouldn't do any deal without involving the tenant, because he would hate to kick him to the curb.
The seller owns it outright, and is perfectly happy with the $1,100 coming in, but said it would be nice to sell (he's representing his mother who is in a nursing home).
Here are my stats and thoughts:
- Home Value today - $115k
- Cost to fix up - $25k
- ARV - $140k
5 year land contract
- Purchase Price - $105k
- Down payment - 20% ($21k)
- Interest rate - 5%
- Rent - $1,100/month
- PITI - $825/month
Lease Option
- Purchase Price, 2 years from now - $120k
- Down Payment - $5k
- Rent - $1,200 ($200 rent credit)
The seller's main concern is that he can't come up with the 20% down. In my offer above, it would give him a chance to get some "skin in the game" at $5k to keep him interested, put him on a credit repair program, and work with him to get financed with 10% down (he'll only need to come up with another $7k).
If all works as decribed above, I would put down a net of $16k ($21k less the $5k down from the T-B), and earn $375/mo in cash flow for a 28% return.
Any thoughts on this structure? Would anyone go another way? I would love some input on if I have anything wrong, or if this is the right direction.
Thanks!