Lease Option Newbie

General Real Estate Investing
1

I have just renovated a house that I would like to do a lease option with. After I refi, I will owe 400k on the house and my monthly payment would be $1880. This is my plan:

2 year lease option
$ 2100 month rent
$300 rent credit
sale price of $440,000 in two years (5% appreciation per year).

what should I charge as an option fee? I’ve heard 1-3%, but 10,000 seems awfully high. Also, I was planning on just reducing the purchase price at the end of the 2 years by the option fee and 24 months of rent credit, instead of actually keeping the money in escrow and then applying it to the purchase price. Am I thinking this through correctly? Is there anything I have missed?

2

I’m a newbie so I may be way off, but hopefully the house is worth more than you owe. So your selling price should be more than what you owe. Let the market of your area determine the price, not what you owe.

I’m curious what others say about the option price.

3

House is probably worth close to 425k now. We bought it for 298k and did renovations. If we refi for 400k, we’ll be able to pay off bank, investors, all renovation costs, and keep about 20k for ourselves on the front end, not counting any option fee, rental cash flow, and money ont eh back end when it sells.

4

10k in not high for an option fee on a $400,000 house.
I just took in 4k on a $120,000 condo.

I would stick with the escrow because if the tennant/buyer default he has something of value to lose.

Work on pricing once you talk to someone that is interested in the property you can lower it then.

5

I have always read on this site not to do the escrow because it got too complicated and I didn’t get any upfront money. Anyone else have any thoughts on this? I’m open to either I guess.

6

Everyone has thier way of doing things, the way I learned and just recently did a L/O was to get the option money.

This situation will insure that the Tennant/Buyer will pay and keep the property in top shape!