Seller wants to sell, rent with option to buy back

3 Replies

Hi everyone. I've been following the podcast and forums for a while now and have question. A seller contacted me recently. He wants to sell me his house, but rent from me with the option of buying it back in the future. This is my first time with this scenario. How should I go about comping the property and determining an asking price? The property is in a high value area in Southern California. 

Make sure you get legal advice on this transaction, it gets very treacherous when you are dealing with a former owner who will remain and occupy the same dwelling. It possibly could be construed as a "loan" not a sale and leaseback with an option.  Especially dangerous if the seller is currently in default/foreclosure.  Okay, now that you have been warned.

Determining strike price for the option is to project out your desired return for your capital, factor in your risks and responsibilities during the Option period.

This does sound kinda hinky.

1. is this guy going to make you commit to selling back to him at a specified price? so that if the home appreciates significantly he can buy it back and sell it at the new market value?

2. is he going to make you do a bunch of work to the home because its not up to code then buy it back at said price?

3. to me it just sounds like this guy needs a loan and cant qualify for it. if this is the case thought it means he probably can buy the property back from you anyway and you will end up with it free and clear

4. Transaction costs, I would be absoloutly sure the price you agree to maybe sell it back to him for is higher than what you are paying him for it, and that it is only good for a limited time (IE. option only available for the next 5Yr's)

Updated about 3 years ago

Can't* buy the house back

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