How to structure Purchase Option so that I can retail after rehab

10 Replies

I'm looking at an opportunity property that the owner will lease to me with the option to purchase at a wholesale price. The property needs rehab. I see this opportunity as "owner carry" while i fund the rehab. Then retail out.

What stipulations , cautions, experience do you have with such transaction so as to advise me to include in my documents. 


I love these sorts of deals... 

If there is a current 1st position loan making sure the owner is current and stays current. During renovation i would stipulate you get to pay their lender directly. obviously control. If you owner finance you can get the deed moved to your name.  If you lease option then recording the option agreement on county records. in my lease options i like putting a clause in there preventing the current owner from trying to leverage against it and lastly for any money your putting in you can also record a loan against the property. this usually is not necessary if you have the other parts done right but adds a belt and suspenders protection for you. 

if property is in charlotte area i can refer you to an attorney that actually knows and understands lesase options. 

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@Don Harris undefined

Ask the attorney about the new accounting requirement and the recognition of a lease option being an installment sale, if they say "huh?" might find another attorney!

Money you may spend may be applied to the strike price, it is not a loan and can become a lien. 

Next issue, what is the extent of rehab? You'll need the owner to contract for major repairs as an option nor a lease (uness it is a commercial lease) may grant the power to contract whereby the contractor has clear lien rights, contractors may not deal with an option holder. You'll also have insurance issues to cover. 

You'd probably be better off with seller financing even at 100% with a balloon note allowing plenty of time for the rehab and marketing, it's much safer being in title. 

You can also use a TIC and TIC Agreement, this puts you in title, you can contract, manage and rehab with funds advanced being in your interest, you can also have the power of sale. This avoids any foreclosure process from a lending arrangement.

Good luck :) 

You will also want to pay attention to the insurance issue. That is, you are planning on rehabbing thereby putting money into the deal. In order to insure the structure as the primary insured, you will need to have an insurable interest. That means that your the owner of record or that through a contract, you have the right and or obligation to insured the structure.

Why is this important, well, you are putting money into this deal through a option fee possibly and certainly through the rehab. You don't want to leave yourself exposed in the event a claim needs to be made after you have put money into the deal and your not the primary insured on the deal. You would be risking the money you have into the deal and giving control to the seller?

As @Bill Gulley had said above, your best bet might be to get seller financing and being recorded on to title as the owner. This will allow you to insure the property as the owner and as the primary insured. The seller would be your lien holder or mortgagee.

Lease Options and Rehabs, yuk!

I like JVs with the home seller, if it is a light rehab

1. Get on title, buy w a single payment note, no payments for 3-4 months, balloon

2. Use private lender money, pay 10% interest, balloon in 3-4 months

3. Buy it, fix it, list it, resell it

4. Pay off 1 and 2

5. Figure $10K  for your profit, 10% for commissions, closing costs, other costs

Note: must resell it at low comps for fast sale, must rehab on budget

@Don Harris

@Kevin R. good input, thanks. @brian 

@Brian Gibbons Thanks for the reply with structure. 

After I get all of the replies and reevaluate ,  I will notify everyone the eventual direction on how the deal finally concludes. 

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