I’ve made a lease option offer and it looks like my offer will go through. Here’s how i structured it:
3 year lease purchase for 151,000. Asking price is 159,900. Market value is roughly 165,000 in a very good area close to a park, perfect for a family. Contract is subject to me finding a tenant buyer and i let them leave it on market, until i find one, if they sell it before I find a tenant buyer then my offer is null and void.
Here’s my question, the basement is not finished & its a half basement. I would like to finish it. What would be the best way to approach finishing it w my offer contingent on finding a tenant buyer? How would i add the value of the basement into the final purchase price with my tenant buyer if the basement is not yet finished? Any ideas on the best way to structure that to figure out the end value? I appreciate any advice.
If you’re buying with a lease/option agreement, do not spend any money on the house, like finishing the basement. Don’t finish the basement until you have the deed. Don’t spend any serious amount of money, say more that a few hundred bucks, on the house until you have the deed. If your seller changes their mind on the deal after you finish the basement and all you have is an option, good luck getting a judge to force them to sell the house to you. Who needs that kind of hassle?
You have a really tight deal as it is and I don’t know how you’ll finish the basement and make any money. I would not do this deal and certainly would not worry about finishing the basement for a tenant.
Hope this helps.
I appreciate the advice, very good. I wont finish the basement. In you investors experience what kind of value does finishing a basement on a home less than 3 years old actually add to the over all value of the house (roughly of course)? One more thing, why is the deal tight? What kind of lease option terms do you usually aim at in homes less than 3 years old?
Here’s the numbers i anticipated
purchase price 151,00 for 3 years
market value 165,000
non-refundable option fee 4% 6,600
lease option to tenant/buyer 12 months 6% appreciation = 9,900.
Cashflow +100 per month = 1200
My price =151,000
Final sales price=175,00
If T/B doesnt exercise option, great i ll net $7800 & do it again for more. Im currently in a fairly hot market, appreciation at 6-7%.
1 year profit right around 25k at no risk because my offer is contingent to finding a tenant buyer.
Please correct me if im off here I really appreciate the advice & your site Jeff is one of the best i’ve seen.
say you find a nice couple. They give you $6000, which you reinvest. Great. In six months they get divorced. You miss two rent checks before the sheriff can get them out, so you have to come up with $3,000 in payments. She painted the bedroom and bathroom purple, etc. You send $2K on paint. Dogs ruined the carpet downstairs $2K. Its 4 months until you get the house fixed an rented, another $6K. You come out of pocket $13K, but get $6K back from the next tenant so you’re only out of pocket $7K. Maybe the next tenants work out, but now you’ve got $7K of pocket, assuming you spent the other $6K from the 1st tenant.
If you’re in love with this deal for some reason, get the deed. The seller can make your life miserable if you don’t have the deed. Say you don’t get your loan done it time for some reason, and you need more time and the owner contacts the tenants and sells to them and cuts you out of the deal.
Can you cover the payment with the rent? If not, maybe the seller can take back a note for their equity so you can take over the payment on the mortgage which may make the house cash flow.
Hope this helps.