Will Buy & Hold Investors Sign a Lease Option & Do The Repairs?

8 Replies

If I have a seller who is willing to sell with seller financing but the property needs repairs to make it rent ready, will a landlord buy & hold investor want to buy the property on a lease option? 

If so, where do you find those landlord buy & hold investors with the cash for repairs?

Here is an example of a deal (in my que now!):

$65k = CMA

$30k = Contractor Quote for Rent Ready Repairs

$32k = Option Sales Price

$5k = Down Payment for Option

$1,200 = CMA Market Rent Rate

$600 = Monthly Lease Payment

11.6% = Annual Cap Rate (Vacancy & Maintenance NOT included)

20.5% = Annual Cash-On-Cash Return

@Brian Sinclair

I don't know if it fits this low-priced deal is a good fit but

I like joint ventures with sellers where 70% of ARV is just too low, so the seller always rejects it

So on alternative is to do a joint venture with the seller, give a note with no payments for four months, now you're on title, you fix it, then resell it, and pay off their note when it resells

Example, $200,000 house, 20,000 in repairs, 70% of ARV minus repairs is 120,000 net to seller

For the joint venture, figure 

10% for resale costs or $20,000, 

add in $20,000 repair bill, 

add in $2000 in private lender interest, and a 

joint venture fee of $10,000 for the real estate investor

This is a better result for the seller, netting the seller $148,000

@Brian Gibbons , @Steve Vaughan & Everyone else.... I am the seller! :) 

I have created a note on this property that is being sold too. I really am just looking for everyone's option from a landlord buyer's point of view who is leasing the property from me on a 3yr term while my note has a 5 yr term. 

Thank you for your helpful feedback!

Your Cap rate and COC returns are of course useless since they are not reality. Also, why would a knowledgable investor lease a $30k junker (before he's spends $35k to fix it up) for $600/mo., as opposed to just buying it?

@Bob Bowling - I am thinking you can readjust the cap rate for your own maintenance and vacancy numbers since everyone has different numbers for those.

@Wayne Brooks - Those are real numbers and that is why I asked this question.  

@Wayne Brooks the answer that I could come up with is because it allows the investor control the property with almost no money down. It could also allow you to finance the property more easily, as you won't be dealing with the pre-repair value and condition issues that may make it more difficult to get financing. Also, the $600 lease payment could be structured as a credit against the purchase price. If that's the case, the entire amount paid before exercising the option could be applied toward the purchase, which would obviously be a great deal if your alternative was a hard money loan or other high interest rate loan. If the home is owned free and clear, you could record the option to protect your interest. Well drafted agreements can make sure you don't get burned.

What do you think about this?

You have a contract with a seller. You contact us to buy the property with our cash. You provide us with contractor quote for repairs and realtor CMA. We agree to move forward. You assign that contract to us for $1. If title work clears, we go to settlement on that property. At settlement we create a note against the property with the purchase price, loan origination fee, processing fee and closing cost included.

Now we sign a Lease Option agreement with you for 10% more than the note amount on a 3 yr term. The option fee is 5% of the Option price. You are required to give 2 month's rent upfront for the lease.

$50,000 - Contract Price w/ Seller

$55,800 - Note amount created from Purchase

$62,000 - Option Price

$3,100 - Option Fee

$725 - Lease Monthly Payment

$4,550 - Down Payment