ok, think I got the Lease-Option thing worked out. Please tell me if this looks ok. Seems like a good way to make money so maybe something is wrong
Buy home for 93k
After my good down, PITI is say $650 monthly
I offer it on LO for:
- $1500 option fee (1.5% of home value)
- Security deposit = to 1 months rent (or more if tenant warrants)
- $1050 monthly rent w/ $50 credit (market rent in area is about 1100-1200)
- LO is for 3 years with rent going up 3% per year and sale price 4% per year. So I have built in equity and rent increases. No surprises. The area will most likely appreciate about the same rate. Not sure how to structure this any better. Doing a appraisal at time of option being exercised to come up with purchase price is not fair at all to the TB. What if they put in new flooring in that 3 years or a new kitchen. Certainly don’t want to discourage them from upgrading the home
- TB is responsible for all repairs since they are buying and for keeping it in same or better condition.
- Clause in agreement against subletting and transferring.
Monthly income = $1050. PITI of 650+50 rent credit = 700. Net Profit $350.
Let us assume the TB rented for 12 months then exercised the option.
12 months x $350 = $4,200 profit
Home bought at 102k - 93k = 9k
Total profit for the year $13, 200.
If my down was say 20,000, my ROI for the year would be 66%.
Is this basically right? It seems to me that it would be best if your TB could close within about a year for best ROI.
If this is correct, then you could go buy 2 props and so forth.
JUST WANTED TO ADD: I know some people say to put the sales price as the max sales price so no matter when they exercise the option, you get full price for 3 years. However, if the property is overvalued, they will have problems getting financing and that is not good.