Structuring a deal advise...Lease Option
Hi All,
I need some advise, I purchased a property from an investor who's retired and already living out of the country. He owns multiple SFR's in which he would like to offload. He's currently traveling but he promised when he returns he would sell me the other property at the same price I bought the first. The problem I'm having is I don't have enough down payment for now to close the deal in the next few months.
The property has good tenants and they would like to stay. How would I go about structuring a deal that would allow me to get this property?
He briefly suggested I can do lease option w/ 10K down but I'm not really sure how that works. If I put 10K down then what? Do I pay him monthly, or do the tenants pay him? I would like to manage the tenants and have them pay me monthly and I pay the owner what ever we decide for payment.
I would love to hear your suggestions.
Thank you!
there's a lot of good post here on BP about lease options. It's definitely a good strategy worth doing more research on.
Generally speaking, you would get the property on a three to five-year lease (or longer if the seller is good with it) with the option to purchase. The $10,000 lease option fee you would pay to the seller is not bad assuming it's a SoCal property. You would then need to ensure that your agreements allow you to sublease the property, do renovations, market the property etcetera. You could then keep the same tenants or get new tenants as needed. You collect the rent from the tenants, then you pay the seller directly. The rent amount that you've agreed to pay the seller should be less than what you would charge your tenants. Therefore you make the spread between those rent amounts as your cash flow.
Then within the lease option term that you have, you would exercise your option to purchase and enter into escrow for the purchase of the property. The $10,000 option fee you paid to the sellar up front would be applied to reduce your purchase price.
There's more to it and certainly a wide variety of strategies that you could use within the lease option. If you're interested in this technique, you should definitely look into it more.
Thank you Mike!
