Updated over 8 years ago on . Most recent reply
First Lease Option Deal - Critique Requested
Current Value $172,000
Repairs $34,000
Seller Owe’s $105,000
Market Rent $900
70% rule offer $86,400
There’s not enough equity in this deal for the seller to accept a cash offer for a rehab. We’re thinking about offering the seller a 3 year lease with guaranteed rent @ $810/mo. with the option to buy for $158,000. The rent is 10% below market to account for possible vacancy. The cost to sell in the area is 6% realtor commission and ~3% seller concessions (typical). Sale price is 8% below market to get us just a bit above the ‘normal’ 9% in costs. We’ll offer a 1000-2000 non-refundable option price if needed.
Then our plan is to lease out the property at ~$950/mo., just a bit above market rent, in 1 year increments. This is just a standard lease with a deposit and no rent credits.
Separately, we’ll offer an option agreement with the tenant/buyer to purchase the property for $182,500 for a $9,000 option price (~5%). We came to this sale price with a 2% appreciation for 3 years. The average appreciation in this area is 2.3% over the past few years. We anticipate these numbers to get negotiated down a bit.
Question - If I don't want to be a landlord in the middle here, would a wrap make more sense?
What are your critiques? Thanks!