Master Lease Option Vs Seller Financing

[Oneil Okpaleke]

I am a new investor looking forward to buying my first rental property. I recently met a nice old man at a coffee shop who is willing to sell me his house. From my research on Zillow, Trulia, and realto.com; the property is worth anywhere between $100k to $120k. I also drove down to see the property and it is a fixer-upper that will require a sizeable amount of work because it hasn't been renovated since 1965 when he purchased it. After running to numbers through BP Calculator, I am in the process of negotiating to make an offer on the property for about $25k with an estimated rehab budget of $30k, and ARV of $100k.

I have a couple of questions for my first move;

Do I first sign a contract with him for about 6weeks to do a detailed due diligence on the property?

And if all goes well and if he is Okay with a Master Lease Option or a Seller Finance? AND If I plan on fixing it up first before renting. which one do I go for and how?

Thanks!

[Dorothy Butala]

Yes, you will want to sign a contract for your due diligence period.  You will also want to involve an attorney in the process regardless of which route you decide to go in terms of financing and purchasing the property.  Seller financing is nice because the property is fully owned by you and the seller acts as the bank at whatever terms you both negotiated and agreed upon.  I haven't used a master lease option but from what I have read, it reminds me of land contracts.  With both of these you don't actually own the property and a seller can back out of the contracts which means you may be doing work on a property you may never own.  I would play it safe and see if the owner will do owner financing.  

I am also curious about your offer of 25K.  What factors made you decide to offer that?  Are you leaving yourself some negotiating wiggle room?  Are you looking for a high equity position?