Flip Lease Option to Flipper?

5 Replies

Looking over how many investors generally work LOs, they tend to focus on just the "pretty houses."

However, I was wondering if it would be possible to have a "damaged house" that I could LO to a flipper/rehabber.

Would that work? If so, how could I structure a potential LO to flip to this sort of a buyer? Any other tips?

Why?

Why not? The basic concept of a lease option is that people want a good deal of money for the property, but it's close to retail, so flippers and landlords (generally) don't want it, because it doesn't allow for profit. The LO allows to buy at a higher rate, have a tenant/buyer pay that higher rate, and the LO investor makes money.

In theory, couldn't this strategy be adapted to LO the damaged homes, in some way? Example, a "live in flipper?"

One of the big benefits to the person who acquires the option is that they can choose to execute the option or not, depending on market conditions.  If you LO a run-down house, the person who gets the LO will need to sink a lot of $$$ into the property, which typically means they are financially committed to the property.  They no longer have much benefit in not executing the option, removing that benefit entirely.

In your scenario, what do you see as the specific benefit for the person acquiring the option, as opposed to buying the property outright for a lower price?

Yes, I do this all the time.  I'm pretty sure I picked it up from Wendy Patton.

It is simple, you buy (control) the property with a lease option.  Then you sell the property to a contractor, investor, or home owner, under similar terms with a few twists.

You get a NROC deposit greater than any you had to put down to secure the property.  The monthly payment you collect has to be greater than the one you are paying. You also mark the property up at least 20% above what you are paying for it overall. 

You need to create a scope of work for the buyer with time hacks built in.  this needs to be part of your contract as an addendum.  ie, buyer must complete repair A before date B or they are in breech of contract and the property reverts back to you. 

this is a great technique with ugly houses.

To your success

Josh

@Josh Caldwell:

Can you help answer @JScott's question? If I can get the damaged home on a LO, how can I make it appealing to an end buyer investor, since they want to be buying it cheaper?

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