Lease/option to buy - sound good?

Hi Everyone -

A good friend of mine lives on a lake and recently told me that her neighbor (a man who rents his lake home out) has been talking about selling because his rent turnover has been so high.

This property is prime vacation or home property, but the home on it is 2 bedrooms, 1 bath and is a fixer. He’s thinking he wants $200k for it. The assessor’s office gives it that value, as well, and as we all know, market value can often be quite a bit higher.

Here’s my scheme: ;D

Contingent upon a satisfactory inspection, I propose that I lease for a year at $100 more a month than he’s currently getting for rent, with an option to buy one year from now for a price we agree to now. To sweeten the deal if he’s not biting, I pay his property taxes over the next year. In return, I can make whatever improvements I want (floors, paint, landscape), with any major changes with his approval.

If, after a year is up, I need an extension, I get six more months. If at that time, I still do not buy the house, he’s not out anything, rather, he has an improved home and has made a steady cash flow.

This is my first potential investment and it looks like a great opportunity. Do any of you see holes in the plan?



Howdy Nancy:

How do you plan on making the payments? Are you going to live there or rent it out or keep it vacant and try to sell after repairs? How will you fund the repairs and do you have estimates? There are probably a ton of other questions like how is the market, soft or HOT etc

Thanks Ted – all good questions!

I am in the process of finding a couple of investors – one is a friend of mine who has indicated an interest, from whom I borrow the amount of 12 x the rent plus taxes, with a guarantee of 20% interest. I’ll bank the money to collect some interest, paying rent out per month. Money for improvements will come from me and the friend, and perhaps another investor.

The plan is to sell once the house is rehabbed after a year.

The market in Washington State has been pretty steady, although I need to do more research on this particular area, the fact that this is a 2-bedroom, and what is possible on the lot. This little idea is still in its infancy. The friend that lives next door to this house said that property does not turn over often in this area.

Thanks for the comments!