How can I get tenants to sign a lease before construction begins?

Question

So I have a duplex I really want to buy but the purchase price plus construction costs puts my loan above my limit based on my salary. Through FHA, my lender said I can use 75% of anticipated rental income as an income source. This allows me to purchase the home with everything included at a price I plan to afford with conservative numbers. The catch is, my lender said I would need to have a rent agreement prior to closing. Does this mean I need to have tenants signed on before I close? If so, how?? I understand the Build to Rent homes do this but I am not a major development company. All inputs are appreciated!

Nick Riccio · Answer

HI @Stuart C Johnson congrats on getting started!

This should not be the case with FHA, a lease should not be required. Typically, we can use the appraisers opinion of “market rent”. I’d ask your lender about this.

Option 2: I have rented apartments when they are down to the studs. I’d put together a marketing piece about the unit. Finishes, layout (if you can), and anything else relevant to the unit. Then, I’d list the unit. I had a ton of interest as renters were very excited about being the first to live in a unit.

Eliott Elias · Answer

What do you mean how? Put it on the market and start generating interest

Stuart Johnson · Answer

My lender responded saying I would have to have a tenant sign a lease prior to or at closing. I just asked him about using an appraiser's "market rent". Hopefully they go for that option! I know I could have the home staged for advertising but that's alot of work and I do not want a hard deadline for construction just in case something goes hairy.