Lease Option with Purchase

I’m attempting to create a way for people with good credit to turn it into CASH. The problem some people have told me is that it looks too good to be true, so it must be a scam. I’m hoping the real estate minds here can set me straight.

The program works as follows: a 720 or better credit investor is matched with a house and 100% financing is found by me. After the purchase I give the investor 2% down with a lease purchase option agreement stating: 5 years of payments covering mortgage (principal and interest), taxes and insurance while guaranteeing 3% compounded with the option to extend another 5 years.

So, after 5 years into the agreement with an arbitrary $250K house the payments would be $5K on day 1 and $39,818.52 at the end of the 5 years assuming no extension. The first issue is that investors are used to comparing deals using the IRR or MIRR techniques. This deal can’t be compared with that technique because the cost to the investor is ZERO dollars but we use the good credit. While the credit score does go down a bit when credit is run and having added debt does impact future loan requests there is little real cost, perhaps a small opportunity cost can be assessed.

Essentially this is free money. This is the basis of the too good to be true thesis. But, I’m forced to demonstrate why it’s not too good to be true because I am using them for leverage. I purchase the property using them as a seller financier, I use their property and split the build up of equity. So, my position is much riskier than theirs. If I fold they have a property and keep my down payment.

Should I just make the returns (free money) a smaller portion of the deal? No one would say it’s too good to be true if I only give them a dollar, but then no one would do it for a different reason.

Any and all thoughts are welcome,
Chris Genrich