Lease Option on a multifamily unit

6 Replies

I am looking to do lease option on a 3 unit property and I want to live in one of the units.  Does anyone have any advice and can this even be done?

Just to be clear. You would sign the lease in your name and rent out the other two units? What kind of lease is it?

Hello Walter

The multi-unit is for sale and I want to ask the owner to a lease option.  I want to take control of all all three unit and live in one.  Two units have tenants.  

@Demetrius Goodwin I have never done one like this, but I'm assuming, since it's a multi-family, you would have to do a MLO (Master Lease Option.)  Brian Gibbons would probably be the one to ask on this one.

I have done lease-options on a number of apartment properties.  The possible advantage for you is that it is possible to keep the down-payment lower.  This allows you to take control of the property and operate it.  You would make a set payment to the owner just like a mortgage.

It is much easier for the owner to take the property back from you if you don't adhere to the lease.  There is no foreclosure process.  So, it is important to have a properly worded lease that does not allow for the owner to break the lease on technicalities.

You will need to finance the owner out by exercising the option.  This is the biggest part of the risk in my opinion.  If the property has not appreciated in value or you don't have the means to obtain the financing, then the lease may run out leaving you with nothing.

In my opinion, these work best when you can lease a neglected or distressed property at a discount.  This way you can add value and quickly refinance the property.

Another piece that can come in to bite you is that most lenders will require skin in the game on a purchase.  You will need to find someone that will look at your lease time operation as ownership.  Otherwise you will need to come up with 20-25% for a down-payment at the time that you exercise your option.

I would treat the tri plex as a single piece of property and lease the whole building with one payment to the owner from your LLC. You would also need another contract for the option to purchase it with its particular terms. He gets one payment and you collect rents and make the difference in payments. Make sure you specify who pays insurance and taxes.

Then you can (as an individual) lease one of the apts from your LLC.

I would rather negotiate a purchase with owner financing instead. This way the title is in your name.

Originally posted by @John Santero :

I would treat the tri plex as a single piece of property and lease the whole building with one payment to the owner from your LLC. You would also need another contract for the option to purchase it with its particular terms. He gets one payment and you collect rents and make the difference in payments. Make sure you specify who pays insurance and taxes.

Then you can (as an individual) lease one of the apts from your LLC.

I would rather negotiate a purchase with owner financing instead. This way the title is in your name.

 John I agree, buy on seller financing and get title so you can improve property, lease options have less control.