Is this a good lease-to-own investment?

I was looking at picking up a property in the AZ market through a turnkey investment property company. It is a lease-to-own investment property, where the tenants are already in place w/ a 2yr contract. Here are the details-

Built 1994
Peak Price- $160K (2005)
Ask Price- $60k
3bed/2bath 1250 sq ft
$52 per sq ft
$900/mo rent (tenant already in place w/ 2yr lease to own contract)
$957 taxes/yr
$393 ins/yr
Cap rate 14.5%
Gross rental return 16.6%

Tenant has an option to purchase the property w/in 2 yrs for $80k.

Opinions? What are my possible pitfalls? What should I watch out for?


Looks pretty good on the surface. If I were you, I’d want to see a couple of things first.
Review the LO contract in place, so see first of all if there is a clause that prevents the Optionor from selling the property during the option period to another party. Our contracts have that.
Also, review who’s paying what closing costs on each transaction.
I’d also want to see the tri-merge for the current Optionee’s, just so you can get a feel for their viability of cashing you out, so that you’ll have an idea of what to expect.

Good points, I will look into these. As far as not being able to be cashed out, I think I am ok with that as I would continue to rent to the tenants or draw up another lease-to-own contract. I think either way, I am still receiving some decent cash flow. Am i incorrect in this assumption?

One benefit of lease to own property is that it provides the leasing party enough time, typically two years, to get things in order and work more on the improvement of credit, and have certain time to also improve money saving.

It’s completely up to you, if you wish to renew their contract, or keep it as a rental. You should get a feel for where the house is located in Arizona, as I live in Pinal County. All the other comments are spot on, and if you do purchase this house, I would get the same contacts the current optionee has as far as mortgage broker or agent the couple is working with, etc. Look over the contracts real good, about who takes care of maintenance on the house. Typically, the optioner does either all the maintenance or up to $500 or something like that.

The whole point is that to them, this is going to be their house, and they will take better care of it than a tenant would.

I couldnt agree more and I will review the LO contract in detail. The reason I do like the LO deal is that the optioner will take care of the home and do the needed maintenance. They have some skin in the game as well, as they have put $2500 down at the execution of the LO contract. They also have incentives to the LO purchase price for getting rent in on time every month.

My ONLY concern is the following: the possibility that neighborhoods with props going to trustee sale are not done falling. What if homes that are bigger and nicer come onto the rental market and are able to be rented out for the same or a bit cheaper (bc they were bought for less)? Then I will have a hard time filling the property if the current tenants decide to move out.

Even though I have read a lot of articles recently touting the Phx (and surrounding areas) rental market, this is my main concern.

What do you think? Anyone else have opinions on this?

Anyone else care to chime in?