I have done this many times and it can add another income stream for you.
This is one of a number of strategies in which the underlying theme is to sell, rent or lease the property for more than market value, or more precisely more than cash market value, by utilizing “no qualifying” or “alt qualifying”financing. More commonly, investors are told to find a property with no equity, buy it subject to, and sell it “lease option or lease to own” with the buyer (renter) paying an option fee and above market rent with part of the rent going toward the purchase price, should the buyer ever be able to excel use the option.
Here’s the problem with those strategies
1. If the renter/buyer defaults, it may be difficult to get him evicted since he may have an equitable interest claim. If his claim is recognized, it could be 2 years to evict in some states.
2. If you as the middle man default, and even if you have no personal liability, you may have to defend a constructive fraud claim.
3. As a result of the above, one bad deal can wipe out the profits of 20 good ones.
4. The Consumer Finance Protection Bureau, and the SAFE Act may be applicable to “lease option” on residential property. A number of states have laws that now regulate these type deals. A knowledgeable attorney would have to be engaged to navigate through the specifics.
It works until it doesn’t. Owner occupied residential real estate is now heavily regulated. The investor, or other type participant needs to know exactly what the risks are with each transaction contemplated.