Lease option, subject to. Should I? Its in North Carolina.

34 Replies

I was just approached with a house(nice little 3-1 1056 sq ft) that a friend of mine is wanting out of. They cant sell and dont want to rent. She said she would let me take over payments if i wanted it. Listing on this house is about to expire so a realtor would not be involved. Asking price is 85,000 but it appraised for 115 i believe. Right now she's just wanting to get out of making the payments. What should i do? I'm not in North Carolina nor do i have any buyers in NC lined up. Taking it over and renting it out might be an option but a little difficult being a 2 hour drive across the mountain for me to deal with tenants. Any advise would be amazing right now as this might turn into my first deal. 

Originally posted by @Alisha Mingus:

I was just approached with a house(nice little 3-1 1056 sq ft) that a friend of mine is wanting out of. They cant sell and dont want to rent. She said she would let me take over payments if i wanted it. Listing on this house is about to expire so a realtor would not be involved. Asking price is 85,000 but it appraised for 115 i believe. Right now she's just wanting to get out of making the payments. What should i do? I'm not in North Carolina nor do i have any buyers in NC lined up. Taking it over and renting it out might be an option but a little difficult being a 2 hour drive across the mountain for me to deal with tenants. Any advise would be amazing right now as this might turn into my first deal. 

 I'm in NC as well and wouldn't mind taking a look.

 I'll sell you the opportunity. (i mean sell my rights once i have the property under contract. im not a realtor nor acting as a broker) LOL. Once i get some advice from a few seasoned investors and decide my best route. Right now im thinking of doing the rent to own approach. Rent to own it for the appraised value which would build in a $30,000 spread and then selling my built in spread for a small fee. IDK. 

Which part of NC? Please let me know if you're interested in passing along the opportunity. I'm in the Raleigh / Wake County area.

Should I start taking bids? I've posted asking for advice and all I've received thus far is request to pass along this potential deal. I'm not sure(being a new member and new to real estate investing as a whole) passing along this deal would teach me anything at all. I will keep you all in mind and contact you once I get this property under contract. Then we can discuss opportunities I'm willing to pass on.  

You can assign it to someone for a price. 

A few more details about this property to help weed out some questions. The property is located near a casino opening soon. Mortgage is right at $550 and fair market rent is in the area of $8-$900 a month.( this is pre casino opening rate) I'm in really good with owner so I could do basic lease option or wrap option. At the mortgage rate i could buy do lease option and hold it as long as necessary without any problems. I could also rent said property and generate a $300 surplus. (which wouldn't really be a surplus if tenant tore something up or anything breaks) I mentioned previously that the appraisal value was 115,000 but forgot to mention that the appraisal was done in 2011. Looking at the comps in this area is a bit hard due to it being so mountainous but from what i can see is that comp houses are going between 40k-120k (again the mountains make it difficult to accurately find comps) Any advise besides "pass it to me please" would be greatly appreciated     

@Alisha Mingus

Lease options are highly regulated in NC. Sub-tos, as well.

For LOs, please be sure to have the lease, option contract, purchase agreement and memorandum of option. If you are planning a sandwich, you need to wet close. 

Best practice would be to consult an attorney in NC. 

Do you know the condition of the property? Also, are you planning on using a PM, if you decide to keep it as a rental? If the appraisal is important to you, then you must get a new appraisal.

Why can't they sell? That's a big red flag. What is the feedback from the current agent? 

Originally posted by @Alisha Mingus:

Any advise besides "pass it to me please" would be greatly appreciated     

 If your friend has tried to sell the house for a while at, I assume, the "appraised" price of $115 and not had any luck, if I were you I would not blindly accept that as the "value" of the property.  If you buy it with the hope to sell it for a big profit, I think you'd be taking a big risk.  

If you buy it with the hope of renting it out for a profit of $300/month and you've never been a landlord before, I think you're taking a big risk.  How much savings do you have?  You don't have to provide a dollar amount, but the pertinent question is can you afford to pay the mortgage on the house if it sits vacant for three months.  Or if a tenant stops paying and it takes you that long to decide to evict them and go through the process?  Can you afford to pay the mortgage yourself for three months AND pay $2000 to repair damage caused by the deadbeat tenant who vandalized the house once you initiated legal eviction proceedings?  If the answer is "no", you should think long and hard before proceeding.

You can try to wholesale the property to a Real Estate Investor.  However, most investors won't blindly accept that nebulous past appraisal as fact.  As I said before, the fact that it hasn't sold is probably related to the price.  Depending on the actual value of the house, your anticipated profit for passing the house on to an investor with money might not be as much as you think.  But, it can't hurt to try.

Good luck.

Originally posted by @Randy E. :
Originally posted by @Alisha Mingus:

Any advise besides "pass it to me please" would be greatly appreciated     

 If your friend has tried to sell the house for a while at, I assume, the "appraised" price of $115 and not had any luck, if I were you I would not blindly accept that as the "value" of the property.  If you buy it with the hope to sell it for a big profit, I think you'd be taking a big risk.  

If you buy it with the hope of renting it out for a profit of $300/month and you've never been a landlord before, I think you're taking a big risk.  How much savings do you have?  You don't have to provide a dollar amount, but the pertinent question is can you afford to pay the mortgage on the house if it sits vacant for three months.  Or if a tenant stops paying and it takes you that long to decide to evict them and go through the process?  Can you afford to pay the mortgage yourself for three months AND pay $2000 to repair damage caused by the deadbeat tenant who vandalized the house once you initiated legal eviction proceedings?  If the answer is "no", you should think long and hard before proceeding.

You can try to wholesale the property to a Real Estate Investor.  However, most investors won't blindly accept that nebulous past appraisal as fact.  As I said before, the fact that it hasn't sold is probably related to the price.  Depending on the actual value of the house, your anticipated profit for passing the house on to an investor with money might not be as much as you think.  But, it can't hurt to try.

Good luck.

 Thank you for the very informative answer and not just responding "pass it to me please". As a newbie I understand that not every deal is going to be for me nor is every deal going to be a deal. With that being said, some of the best lessons are learned the hard way. I'm not wanting to fall on my face but if diving in is going to teach me and the fall isnt that far then i guess i'll be in for some bumps and scrapes. My post here was to ask more experienced investors how they felt about this kind of deal to help determine if i was on the high or low dive before jumping. My savings isnt where i'd like to see it (but who's is really?) but i could definitely swing the mortgage and some repairs if need be. Being a landlord has never been my goal but when opportunity presents itself i feel we are sometimes pushed in a different direction in order to achieve our set out goal. Is rolling with the punches and finding a creative solution not the path of an successful entrepreneur? 

The house was never rented due to my friends concern with dead beat tenants. Not implying that I'm real excited about them either but if its a necessary evil and only risking a couple thousand then why wouldnt i pay that couple thousand to the school of hard knock that may or may not pay off? Even if its just to lock me in to a time in the future when my finances are better and i can just buy the property outright. My main goal is to find bottom dollar, get it under contract then sell to an investor in that area. If theres not enough meat on the bone for that to happen then I was thinking sandwich lease option. Find a tenant buyer that would take decent care of the property with hopes of purchasing it themselves in the future. I can afford to pay the mortgage a few months screening tenant buyers. Then the non refundable option fee could be applied to any future issues that may arise with the property until its sold. I'm sure I'll have more time in it than id like but as stated earlier, some lessons cant come free of charge. 

@Alisha Mingus

I talked to a Raleigh NC attorney a few months back who does Sub 2 for her real estate clients, she says judges hate lease options

Think lease purchase in NC or lease with ROFR

Medium banner reiskills 997   copyBrian Gibbons, REISkills | [email protected] | 818‑400‑3046 | http://MyREISkills.com

As others have said, NC regulates some REI activities, lease/options being one of them. Just follow the letter of the law and you should be ok. I believe most of the sham operators were/are out of business once attention to the L/O problems/abuses were in front of the general assembly. I have greater concern over a 4 year old appraisal (which, numbers wise, is worthless) and would question all the numbers. If you assign, note that you have statutory duties if there is a L/O, land contract, or (I believe... can't find a NCGS link because I haven't done one for quite a long time) a 'subject to' a mortgage deal.

Originally posted by @Alisha Mingus:

Should I start taking bids? I've posted asking for advice and all I've received thus far is request to pass along this potential deal. I'm not sure(being a new member and new to real estate investing as a whole) passing along this deal would teach me anything at all. I will keep you all in mind and contact you once I get this property under contract. Then we can discuss opportunities I'm willing to pass on.  

 My apologies if I added to the confusion. If the property is in the Mountains, have you considered making it a vacation rental? Many of them go for $2-300 night, depending on the location. A one week visit by guests, and you've paid mortgage for the month... Just my $0.02...

Melvin has a good idea. You mentioned this property is near new casino construction. Depending on completion date, nightly rates or weekend rates for this home could be a great possibility.

Well, I've taken the advise offered here to heart and have backed off the property a little. At the moment I'm waiting on the seller (my friend) to let me know exactly what she wants to be out from under it. If the price is right then I'm just going use a buy and hold investor friend of mine to do some sort of lease option from his end once he owns the property. 

The vacation rental idea is an option that i hadnt thought about. That may also be taken into consideration in the future should I decide to move forward. 

My apologies if I sounded like I wasnt hearing the opinions of you seasoned investors. I was a little excited when I was approached out of the blue the way i was. I guess it just feels good to see that my hard work and unorthodox methods are actually paying off. (kind of paying off. good or bad deal is still a deal right?) Thanks again guys and I'll update this forum in the future when or if things go thru.

Originally posted by @Brian Gibbons :

@Alisha Mingus

Be cautious of Lease Options in NC.

See

http://bundlr.com/b/lease-options-nc


 What about wraps in NC? If I were to just do a wrap on a mortgage and become a landlord. I was approached by another person today about doing a wrap or sub to in NC. ( I'm starting to think either I live in the wrong place or my marketing is off target by a few miles lol) I'm still confused on how the wrap works . I mean I understand how it works but don't understand what the final result is. This new property is about 5k upside down and needs about 5k in repairs. Could I not structure to deal to make the seller pay me for what's upsidedown and the repairs? Maybe have them pay the first 3 months after I take over the note to give me time to repair it and get it rented. More importantly, the sellers wanting to sell so they can buy something else. If I did a wrap would that free their credit up or just keep it tied up? I'm trying to be create and not be just a "wholesaler" . I'd like my bag of tricks to be as diverse as possible

Originally posted by @Melvin F. :
Originally posted by @Alisha Mingus:

Should I start taking bids? I've posted asking for advice and all I've received thus far is request to pass along this potential deal. I'm not sure(being a new member and new to real estate investing as a whole) passing along this deal would teach me anything at all. I will keep you all in mind and contact you once I get this property under contract. Then we can discuss opportunities I'm willing to pass on.  

 My apologies if I added to the confusion. If the property is in the Mountains, have you considered making it a vacation rental? Many of them go for $2-300 night, depending on the location. A one week visit by guests, and you've paid mortgage for the month... Just my $0.02...

 I hadn't thought of that until you mentioned it. Thank you for opening my eyes in that direction. I've just been approached by another home owner over there with a similar senerio. I'm starting to wonder if I need to be in NC . I hope once I get a few deals going here at home word travels as fast as it does in the mountains.thanks again for the advice. 

@Alisha Mingus

I spoke to a Raleigh NC attorney and the LOCAL opinion is that judges think that lease options are not a great deal for the tenant buyer.

Buying on terms is great as long as you have LOCAL legal representation.

Buying sub2, getting the deed, giving a note for any equity, getting on title, then LEASING with a ROFR or right of first refusal, is the way, I believe, the get the renter into home ownership, not a lease option, in NC.

Medium banner reiskills 997   copyBrian Gibbons, REISkills | [email protected] | 818‑400‑3046 | http://MyREISkills.com

Originally posted by @Brian Gibbons :

@Alisha Mingus

I spoke to a Raleigh NC attorney and the LOCAL opinion is that judges think that lease options are not a great deal for the tenant buyer.

Buying on terms is great as long as you have LOCAL legal representation.

Buying sub2, getting the deed, giving a note for any equity, getting on title, then LEASING with a ROFR or right of first refusal, is the way, I believe, the get the renter into home ownership, not a lease option, in NC.

 I've steered away from the lease options. I'm familular with rofr as I used them in my other companies contracts. I'm really leaning toward just becoming a landlord at this point. Finding a good pm and picking up the (now 2 properties) on owner financing. Getting a wrap on both and just renting them. On this second property I'm thinking I can get the seller to pay me when I take over payments. What I'm confused about now is how the wrap effects their credit. If they do a wrap with me will it free their credit up enough to buy another house or will the still be on the line? 

will their credit still be on the line and tied up until I close the original note. Sorry , I'm in my phone and it didn't post my response correctly

If you buy on subject to or by on wraparound mortgage , the seller has to keep that loan in their name for a while, it doesn't free up their credit for generally two years or more

Medium banner reiskills 997   copyBrian Gibbons, REISkills | [email protected] | 818‑400‑3046 | http://MyREISkills.com

Originally posted by @Brian Gibbons :

If you buy on subject to or by on wraparound mortgage , the seller has to keep that loan in their name for a while, it doesn't free up their credit for generally two years or more

 So the real way to get their credit off the line and free them up would be to just buy it out right. And being that they are upside down they'd have to short sale the property or pay the difference at closing correct. This is starting to appear to not be a deal I'm not going to have a solution for that will work for both myself and seller. UNLESS( might be dumb but I am a blonde) the wrap would relieve their credit over a couple years and I could find them another house ( the one I originally posted about) that they liked and could rent it to them for a few years until their credit was freed up enough to find and buy another house. Maybe in that time period I could do some renovations to the original property and get my investment back out of it. I'm doing my best to think outside the box here but don't know if I'm being foolish in my ideas.  

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