I have structured my business such that I’m doing lease option assignments and I’m staying in the deal if I dont get all of my fees. I am structuring this such that I get a down payment which classified the non-refundable option fee, I’m also making spread on the monthly payment and the balloon payment.
My concern is: What is the best way to structure a lease option assignment when the house needs a new roof for between 10-15K, havent gotten the bid yet, and my buyer typically isnt coming in with quite that amount of down. The current mortgage i also behind 1 month, so it may require 2500-3600 to catch it up by the time I get this sold?
The TB will be coming in with 5-8K at best? I need some creative ideas of ways to structure this as this is one of our first deals? Also the seller cant afford anything and doesnt want anything other than the house gone.
Option money right now is hovering around 3%, and the buyers are skiddish about values. So, you might consider selling this with full-on seller financing (land contract), where the buyer gets all the tax and mortgage interest deductions.
Buyers are more apt to give you 7% to 8% down, depending on the house/neighborhood/marketability, and how much qualifying you’re putting the buyer through.
If you sell the house as-is and market the house as a fixer, then say the reason you’re offering such fantastic terms is that the house needs work.
Meantime, if the house needs a bunch of work, most buyers don’t have the money to both fix a house and offer a down payment of any significance. It’s usually one or the other. So pick which will work for your situation.
In your case, you’ve already said you won’t get enough to cover repairs and back payments without coming out of pocket. That means, you should get an option on the house, and give yourself plenty of time to see what you can do, without making yourself liable.
In my opinion, this deal is too thin for someone without experience, and a person with experience will pass on it for easier profits. Meantime, if you just have to do this deal, the only way to make lemonade is to get in light, limit your risk, and then see if you can actually find someone willing to buy a fixer.
One upside here is the ability to offer a tenant/buyer a LONG TERM option/contract. If you don’t force him to get new financing like in 24 months, or 12 months, but give him an extended time …and make the deal really attractive, despite having to do remedial repairs, you might get more money up front, and even a better price.
I would not consider this being a good deal. It’s $3k behind in payments and needs $15k worth of work? Really? That’s $18K? And you can only expect to get $8 up front. Nah, pass.
It’s tempting to try to shoe-horn this deal into something profitable, but I think you can find more practical and profitable deals than this. Again, this is a deal that is more suited for an experienced optionor. All said, I think you’re going to discover that this is going to require four or five-month’s time to bake this cookie. That’s a lot of payments to cover. Just saying.
Pass this one up, its no good. Remember that the optionee is just renting. Why would they want tp pay for repairs? You should also get used to calling the downpayment the option consideration because that’s what it realy is. This one might eventually go to a short sale considering the owner can’t make payments anyway.
Most important thing regarding this situation…don’t sign up Lease Option deals (where you have no ownership, just control) where:
a) House requires any repairs
b) house is behind in payments or soon to be behind (This is a big one).
c) Homeowners are in some distressing financial situation (upcoming job loss, reduced pay, divorce etc.
This is nowhere near a deal financially. Got to be careful with L/O deals because if you tried signing it up, have no control via full ownership, have no deed or aren’t on title, got involved in the deal and brought up the back payments and fixed the repairs needed, what’s stopping the homeowner from putting another mortgage on their and cutting you out? Nuthing! Or something else to screw things up. If there is anything at all less than ideal, sign up on Sub2 deal instead where you get full ownership. That is of course if the numbers make sense. Walk otherwise.
I can do this as a lease option assignment or a sub 2 either way nothing down from me other than I need to catch up the 1 payment behind…They know if I cant get this done it goes to foreclosure most likely. My contracts totally indemnify my company and I’m not responsible for anything at all until I find a buyer.
I feel like I dont have anything to lose, if I can make it work, great, if not then I’m out my time and thats it. I was thinking I can get the roof repaired by a contractor buddy of mine as a side job. We will just have the rear of the house roofed and I can get enough money upfront for both the roof and back payments, but again, if I cant…so be it and on down the road I go.
I’m not saying there’s no deal here, but a typical SLO is not the answer. You don’t want to take all that risk and obligation, trust me. Here’s a hint: NEVER do repairs on a house you don’t own!
However this could be a great work-for-equity type deal depending on the numbers. If there’s equity you can simply give a chunk of it to the buyer in exchange for doing the work. Put the roof repair obligation on the buyer in exchange for easy terms, low down, and equity. If he repairs it great, if not you’re no worse off in any way than you are now. You won’t be getting a big down payment/option fee, but at least you don’t have to do the work. But just make sure you work in a monthly spread and balloon and you’re done.
The fact that it’s one month behind isn’t too big a deal. You could even let that roll (a “rolling 30” which I’m sure you’re familiar with being a mortgage banker). But what I’d do is write a condition in the contract with the seller that they are to make up all arrearage within like 90 days of contract execution. You’ll be taking over their payments anyway going forward, all they gotta make up is one payment. Remember this is their mess. Have them help you clean it up if they want your help…tell them to help me help you. If they can’t or won’t do it just make sure payments are made going forward and it’ll be fine. You won’t get foreclosed on if you’re only behind a month or 2. As long as there’s equity in the back end balloon it’ll just come out of the proceeds when it sells.
The key to this deal is it has to have equity…does it? What are the numbers?
I hear ya on the dont do repairs on a house that you dont own theroy. I am assigning the lease option to the end buyer or I can do a contract and assignment, either one with nothing down from me. They owe 126K and I should be able to sell it on contract for 156K.
As for the repairs, I will be getting a bid from my contractor buddy as a side job, and hope to keep the roof repair down to 5K or less, which I will get from either the non-refundable option fee or the down payment.
I like your idea of keepin a 1x30 going, hadnt thought about that, weird considering I’m in the mortgage business, I guess my thoughts were to bring it current, but hey this is their mess. If I can bring it current I will though.
I of course will have a spread on the monthly payment and the balloon no matter if I do this as a lease option or a contract, but I’m leaning toward a contract at this point.