I currently have a deal under contract and would like to know if it would be a good sandwhich lease option deal.
Property has ARV of 75k-80k
Repairs need 12k-15k but property is livable.
There is an 8500 lien on property and another 1300 owed in taxes.
Property under contract at 25k-30k Would this be a good deal to do lease option with seller for 10 year term, pay just the taxes as down payment, then lease option purchase to another buyer for a purchase price of 55k say 3k down and 600 rent?
My question is what about the liens on property? Even if the lien is paid, what about risks of more liens being put on the property during my option period of buying it?
Could somebody give some good advice on how to properly do this? When to do it and when not to?
Thank you all so much!
No, for the following reasons:
1 - Rehab. You don't want to do any rehab, or at least have any rehab costs come out of your pocket. Why would you do that? That's money down the drain if you don't exercise your option. The idea of a LO is to have as little money out of pocket to "control" the property until you decide to actually buy it when you exercise your option.
2 - You want a clean property...no liens on it. Any existing liens have first right. You'd be wasting your money. Again, the idea of a LO is to use very little money to "control" the property. The Leins have control...not you.
3 - If the taxes are not paid by the current owner (NOT YOU...See #1), that's a potential tax lien (see #2)
4 - Lease Options are usually for 3 years or less...not 10.
5 - There is no Down Payment in a LO.
The bottom line is this. You are commingling a LO, a Sandwich LO, and a Land Contract together.
Thank you for the advice Joe. I have some investors in my area that seem to be getting beat up properties that cant get low enough due to existing mortgage but are contracting them and immediately doing a lease option with a new buyer without doing any fixing to the property. Just wanted to find out how they are making money doing it that way. Also even if the property is clean with no liens, what happens if later on down the line before you purchase, a lien gets put on property? I'm assuming you can back out of deal at any point in time with proper contingencies?
Also, you're expecting seller/owner to keep paying the taxes or would that be LO buyers responsibility. Wouldn't want owner to not pay taxes and create lien.