Updated almost 15 years ago on . Most recent reply
Lease Option Deal Analysis
One of the realtors I work with called me with following deal. She has someone who owns free and clear a SFR 3/2 in a nice neighborhood. He needs a cash injection to pay some medical bills. His wife has cancer. The estimated FMV is $150K. He willing to sell me the house for $90K and sign a lease option immediately to buy back the house in 2 years. Supposedly his credit rating will not allow such other strategies as a Heloc. The house was his mother-in-law's who now lives wiht him and she has signed it over to him. I need to decide on the monthly lease payments and the price of the home when he exercises the option in 24 months. I have asked my realtor to run comps and also a credit check on the owner. I also asked for a preliminary title search. Is this a good deal? Have I overlooked anything? Finally I don't have $90K in cash so I need to find the money. What funding source would you recommend? I can tap my stock/mutual fund portfoilio but that would be taxed as income and I also would lose any appreciation that money would have made in my investment plan.
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Make sure no lien has been filed in this case before you do a sale/lease back/option. It is an attempt to circumvent the validity of the lien that a hospital/doctor may have. Doing so can lead down a road of fraud very easily, so be careful. If you can get it with clean title, go from there.
Addressing the other thread:
Timming is important too. After a notice of default/demand is mailed out, the seller will not be able to contract on the property without consent of that lender, it is a notice of legal action and your contract can be squashed.
Also, 2 years is not long enough to repair credit in most cases for a mortgage, minimum is three and four is much better. SInce this property is not owner occupied, you need to brush up on the SAFE Act as well to do an installment deal. Look to your state laws for installment contracts and the SAFE Act as implemented in your state.
Remember to use two seperate contracts, one as a lease, the other an option. Doing this as an arm's length transaction might be tricky, see your attorney for this deal!
And, Jon makes a good point as well in the other thread. Good luck