LEASE OPTION | REPAIRS ADVICE!

6 Replies

Situation:

The homeowner said it needs comestic repairs, the ARF of the property is 200k he is selling it for 165k, everything works it just needs carpet and painting. I will post some photos on here later when I take a look at the property. But my question is.. do I need to make it a complete remodel in order to sell it on a lease with option for 200k? Or do I need to update everything?

One of the many advantages of using a lease / option is that you really don't have to do a complete remodel.  We always market our lease/option homes as "minor fixer" and "paint / carpet / tile / etc special".  People who want to own are willing to do upgrades to make the home their own, that's ok.  It's all in how you market the property and in a well worded lease (and separate) option agreement.  We personally make sure all the major mechanical things are good but cosmetic stuff is ok - I lost count how many homes we have with popcorn ceilings...

Originally posted by @Fili Aguirre:

@Andrew Kiel does it mean I can sell it for the ARV without actually fixing it?

ARV means after repair value. So the quality and scope of the repairs affects that after repair value. Doing a complete full gut rehab with high end finishes is going to make the property more valuable than a quick paint and carpet job.

Knowing what repairs will bring the best return on investment require knowing your market and the expectations of renters or buyers. 

When we do an option, we typically do a 10 year option with our new resident. As such we get much higher than current market value, as we should for a long term option. When we typically talk about ARV we usually are considering a bank financed or cash sale. Value is relative - if you offer owner financing you can often get above ARV. A perfect house should sell for it's ARV. Also a not so perfect house that needs cosmetic repairs offered with some version of owner financing (lease option, contract for deed, subject to) can often go for above ARV from my experience.

@Andrew Kiel How do you approach a scenario when your tenant buyer ends their lease after a year or two but still holds the option for the better part of a decade?  Do you then rent the property month-to-month until the option is exercised or expired?

@Brandon Roof - Although the lease and options are separate documents, the option specifies certain conditions.  One of the conditions is that they need to occupy the house or they void their option, another is if they are more than 15 days late on a payment they can also void the option.  Good documents are a very key factor in making sure you are well protected.