OfflineI am about to close on a property on 15th. This is a bank REO, ARV is about 90k , got it for 65k. Needs some repairs - carpet, paint, water heater etc., I have couple of other properties that have renters in them. For this property (ranch home 3br/2bath,1050sqft) I would like to structure a lease with option to purchase as I think that would be more profitable than just renting it out. The rents in the area are $850, how do I structure the deal for maximum profit?
What I am thinking is -
Option fee - $5000
Rent - $950 ($100 credit towards their downpayment)
Purchase price - 90k
Please advice.
Thanks!
Maddy
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Your attitude determines your altitude!
Does anyone have any advice??
Your attitude determines your altitude!
Maddy,
There are pros and cons to doing a lease option on a property you own. The reality is that when the time comes for the lessee/optionee is supposed to close, if the purchase price is equal to or greater than market, then they won't close. Conversely, if the purchase price is lower than the market they will close. If they do close you have a built in profit. You didn't mention how long you would give them to close. If it is a shorter period of time, your return on investment will be pretty good, but if it is strung out for a few years, your return on investment won't be that great.
With respect to the rent, you are showing that you would charge $100 over the market rent, but you are crediting the lessee with that amount against the purchase price, so if they don't close, you have made a positive cash flow each month, but if they do close, you haven't had a positive cash flow, it was a break even as you compare it to a straight rental.
The good part of a lease with an option to purchase is that the lessee is more likely to keep the place in good shape and even do some repairs and replacements.
Let me know if you have specific questions.