Looking for input!! I'm not in a position to get traditional financing (already used the FHA option) so I'm looking for a creative way to keep moving forward with investing. A house up the street from me is not on the market yet but I know the owner and he's looking to sell as is (a lot of started projects and very few completed). Regardless of if I sell my current home or rent it (or do a lease option), I know that if my wife and I moved into this house up the street we would be able to complete the projects while living there and get a considerable amount of forced appreciation on it. The idea would be to lock in a purchase price at the current value, and sell when the renovation is complete, netting the difference. He gets to cashflow and lock in a sale and we get to invest without traditional financing, perfect! The only question is whether or not this is advisable because we would be putting money into the property as essentially tenants, and he would have to trust that if we decide not to buy that the house is in at least as good of condition as when we moved in (i.e. we know what were doing with the renovations).
I am still learning about lease options, and I am wondering if someone who is more knowledgeable can let me know if they see an opportunity in this scenario or if I am missing something? What would a typical arrangement of the lease option be in a situation like this?
First, the leas and the option are separate agreements. Don't commingle them. LO's a great for investors and most buyers, but in this case if it were me I would take the Land Contract route. That way, all of your monthly payments would count towards the purchase, and you would have a much longer period of time to decide to buy and to do any rehab work. I never do any rehab if I'm buying a LO.
@Colin Young A similar question was asked earlier today about improving/upgrading a property as the tenant in a lease option. My reply to that post is the same as this: don't make improvements on a property that you don't own.
@Collin Jenkins . I have done both and looks like an opportunity here. You could do L/O but agree with advice that a land contract recorded at county may be a better way to do this. Happy to discuss if you want to talk more.