Hi, just trying to weigh pros and cons of different exit strategies on a SFR I own. It is financed and I have tenants who are one year into a two year lease. They are good tenants and I am in no rush to sell, but I feel my money could be used more effectively elsewhere. My questions are:
1) Is it possible and realistic to offer a lease option to current tenants considering I have a mortgage on the property?
2) If #1 is possible, when is the best time to offer the lease option? I thought about checking in with tenants and offering after the end of the 1st year. It could also be a good bargaining chip after the lease expires if I either decide to sell outright or raise rent slightly.
I purchased completely renovated for $80k. It's easily worth $95k. I have about 15k in down payment tied up as well. Curious to hear everybody's thoughts. Thanks!
Lease with options to buy don't impact and aren't affected by an underlying mortgage much as long as it's less than a 3yr option. How it used to be anyway. As far as a DOS violation, most mortgagee's don't consider it a 'sale' unless there is an exclusive option for 3 yrs+.
All of mine as an optionor or optionee have been on houses with debt. Usually pretty houses with low equity.
You may bring it up EOY1. If your tenants have an interest, I think it's a great strategy as long as you aren't trying to get to the equity quickly. Do a separate lease (I also require them to pay the first $150 of repairs that come up) and separate exclusive option to buy. Get option consideration and apply that to closing costs at exercise, not PP or 'rent credits' and you should be fine @Ian Olmsted !
Good insights, thanks! @Steve Vaughan, can you clarify what you mean by "PP"? Purchase price? I wonder if you can elaborate in general the differences in where the option consideration is applied at exercise.