Need help on what I should offer for this deal

[Gerrell King]

Hey BP Family! I’m new to RE investing and this is my third attempt of doing a deal and could use some advice. I’m in talks with an investor that is looking to sell his rental property and I’m not 100% sure on what I should offer. Details: -4 Bed 2 Bath -1296 sqft. -Built in 2005 -C List neighborhood. Not a war zone but has a high crime score on Trulia, mainly theft. -ARV: $428,970 -Asking Price: $439,800 (Price reduction from $450,000) -Average price for homes sold in the neighborhood his $402,000 -Been on the market 95 days -Currently has a tenant and their lease ends Jan 31, 2018. -Seller purchased the property in 2015 and made upgrades to the kitchen, bathroom, and floors before renting it out. -I haven’t seen the inside because of the tenants. After speaking with the seller he stated that he would like to sell the property to buy his next property but is willing to do a lease option. His requirements for a lease option are: Terms: 2 years Down payment: 5-10% Monthly Rental: $2,750/mo (Current tenant pays this now) The exit strategy I’m considering for this deal is a Lease Option with another buyer. I’d be finding a buyer interested in a 1 year lease option and using their down payment to cover the initial down payment. When they exercise their option to purchase, they’d be paying me enough to pay the original seller and make a profit for myself. Any tips, thoughts, advice, or guidance would be highly appreciated! Thanks!!

[Michael Reyes]

Hi @Gerrell King.  I guess I misunderstood your intention.  My assumption was that you were willing or considering his asking price.  Local market rates/comps dictate an acceptable purchase price.  I would gather my facts about what is his house is worth based on comps and make a fair offer based on that.

Since your intention to to turn this into a lease option, I would make sure that the rental market would support rental rates for that type of property should you need to go that route in the beginning.  It needs to be able to support positive cash flow to make it a good deal.

The deal needs to be a win-win for him and you.  If you haven't heard the phrase, you make your money when you buy.  Buy based on the numbers, not emotion and you'll come out ahead in the long run.

Cheers,