I am about to pull the trigger on my first lease option here in the Tampa Bay area. I just want to run the numbers by everyone first.
3/2; 1700sf; on the water with a 40 deep water dock; deal can be done furnished or unfurnished. Sale price $525,000; monthly rent $1500 unfurnished, $1800 furnished; option fee $0; 24 month length I am going to lock it up with a 90 day non-exclusive contract during which time I will find a tenant buyer. The sellers are retired and live on their boat and in their RV and just want to get rid of the house. They own it free and clear. The seller will carry financing for my t/b if need be.
I am going to do an 18 month lease option to the t/b for $10000 option fee; $1800 unfurnished, $2000 furnished; and a sale price of $564375.
To recap (seller to me):
24 month lease
$525000 sale price (full price)
$0 option fee
$1500/1800 rent
My out of pocket expenses: $0
(me to t/b)
18 month lease
$564375 sale price (this is adjusted to 5% annual appreciation)
$1800/2000 rent
$10000 option fee
So it seems that my profit will be:
$3600 cash flow (18 months x $200)
$39,375 on the back end
$10000 option fee
Total profit: $52, 975
So what does anyone think? Does anyone have any concerns that I should be aware of? Is this deal a decent one?
Be sure you are allowed an extension on the L/O term with the current HO, just in case financing comes to a halt. Who knows what this financial situation is going to do to the economy. Everything else looks good though. Good luck.
Believe me, I would rather get at least a 5% option fee. I just don’t think that is feasable in today’s economic climate. Besides, the $10000 fee fits in with my minimum profit requirements.
As for the vacancies that may occur, I will cover them. I will be putting the $10000 into an account to be used for repairs, maintenance, and vacancies.
You’d be making a profit of $50k with no risk, right? It’s a good deal! A a better deal would be $50k profit on a house worth $20k! :biggrin Hope it works for you!
what is the underlying mortgage balance on this property if you’re giving a full price offer of $525,000?
a mortgage payment on a $525,000 property @ 7% 30 year fixed would be $3,492.84
you’ve got a rental payment of $2,000 so im assuming there has to be negative cashflow on behalf of the seller or the seller put a significant amount of a downpayment to get this payment down or the seller has a 10-15 year seasoned loan.
please post the underlying mortgage balance, mortgage payments, interest rate, and length of the term.
majority of the properties im dealing with here in california are in the same scenario but are upside down in equity and more likely has a bad mortgage with high payments above $4,000.
From the buying end of the lease option, everything looks well taken care of, although I do believe that you will need to have a clause for 1 year renewals on the lease just to cover your end on getting an appropriate tenant buyer in place for purchasing the property.
However, from the selling perspective, I don’t like the numbers. The option payment is fine (although 3-5% is the norm). But the point of doing a sandwich lease option is getting a viable tenant-buyer in there so you can make that chuck of change at the sale. Your tenant buyer will have to qualify for mortgage when it’s all said and done, so the monthly rental payments need to be more in line with a mortgage payment–at least 3200/mo–for the asking price of the property. You’ll want to be helping your tenant buyer with getting them set up for success, so you will have to get them into the comfort zone of the mortgage payment and I highly recommend that you get your lender/mortgage broker (you do have an investment team in place, don’t you?) to evaluate the prospective tenant buyers so you can feel assured of the feasibility of the deal.
(Start running your ads today for that tenant buyer!!)
Lease options are incredible wealth building tool but you have to look at the deal from 2 perspectives: the holding of the property and the selling of the property. You are on the right track, now just start thinking backwards so you can determine how you’ll get your tenant-buyer to actually buy the property. Good luck!
put a mortgage note against it with favorable terms and a low interest rate and then sell it on a lease option.
id transfer the property into a land trust, transfer the title to a trustee, and retain 100% of the beneficial interest and make payments to the original seller since they will now become a bank or a private mortgage holder. if i default on the payments, they can repossess 100% of my beneficial interest of the trust and get the title back from the trustee without going through a judicial foreclosure. exit would be a lease to own to my own tenant/buyer on a triple net lease basis.