Build a unit during a lease option?

2 Replies

Please offer guidance on the following scenario:

Execute a 3 year lease option on a small multi family in CA (2 units). The property has room to build 2 additional accessory dwelling units (ADUs). The strategy would look like renovating the existing units, building two ADUs, and then selling the property.

I see the risk of spending $300 to $600k on a property that I don't actually own yet (but do have an option to buy). However, avoiding having to get $800k financing for the main property even before beginning to renovate/build the ADUs would be a big benefit.

Would there be any possibility of getting construction financing on a lease option?

My inclination is that this is a bad idea but wanted to put the idea out for feedback anyways. Perhaps seller financing would be a better approach.

Thank you!

Eric, the general rule of thumb is "no title, no improvements". I must agree with that, but I will admit here to violating that rule in the past. However, it was a much simpler deal and smaller risk. I had a 6 month lease option on a SFR that needed some work. New roof, carpet, exterior paint job, and hauling away some debris. My plan was to complete the rehab and flip the deal. Took about 6 weeks to complete the work and another 6 to find a buyer. Sold it, made my profit, and moved on. But my Plan B was to exercise my option if I couldn't flip it within those 6 months and use it as a rental. The deal you're looking at might not go as smoothly and involves much more risk. I wouldn't do it.