A Bit Unsure About My First L/O Deal
I am looking for some enlightenment from you guys on whether or not the deal I put together is feasible.
I thought that I would be estatic when I did my first deal, but I'm a bit on the fence.
OK, here are the facts:
New subdivision (1998) in a VERY nice area. I was able to determine from due dilligence that they bought the house brand new at $277k and comparables from the last 6 months range from $350k to $373.
Asking price - $365k
Amount owed - $150k
PITI - $1231
Sellers are fellow employees at my company and are building a new home about 30 minutes away. Would prefer not to use a Realtor but would as a last resort. They considered doing a FSBO but were open to what I was offering. They also have a 'large network of friends' to possibly find a buyer from. The house would not be available to move into until 1 July.
Here is the deal I got them to agree on:
Selling price - $365k with $215k now (they need their equity to put toward their new home) and the remaining $150 due at closing. I'd cover their monthly payments of $1231 and handle maintenance up to $150 each month. I have an option to purchase the house within six years.
Homes have a pretty decent appreciation rate in that area and looks like it is a winner. Obviously, I'd have to get financing to cover the $215k, so I was considering an investor loan for that. With my credit I figured I could get a decent rate of 7.5% or so for 60% of the conservative market value.
Don't all kick me at once, but I did not sign up the deal right then and there because I was...how can I say this...SCARED SILLY! 
But seriously, they have their parents here from India and had a full schedule today, but we set a appointment for tomorrow morning to sign the deal. We have so much time before they move that I did not think it was asking too much (stop kicking me!). I know I should have signed it up today...
Any thoughts on if this is a home-run my first time at bat? Should I be able to get financing to cover the $215k? I have no idea what the rents are in the area (a bit out of my farm area) but there are very few, if any, renters in the area.
There it all is on the table for all to see. I'm prepared to take criticisms. :-D
Thanks in advance for the help...this online community is great!
Dear 13935,
I too am new at Real Estate investing and l/o. However, and I could be wrong here, but I believe you shouldn't need to be obtaining any financing at all in a true l/o purchase. Unless I've misunderstood what I've been reading, you should have just offered to take over their monthly payments of $1231and possibly offered them an option consideration amount of $1-2K. Then offer them the benefit of paying all the monthly expenses up to $150. From there you would remind them of some of their benefits in this agreement such as not having to pay a 6% brokers commission as well as still having their yearly tax write off as well.
Next you would go out and get a tenet/buyer who would give you option consideration of 3-5% of the purchase price and charge a monthly rent somewhere around $1500 giving you about a $270 positive monthly cash flow.
I believe, in a true lease option deal, you shouldn't have to cash them out until you exercise your lease.
Well like I said I'm new at this as well, but that's my take on the things I've been reading. Good luck with your deal.
Robert
You are correct Robert, the deal isn't a good one for L/O. In fact, it's not a good deal at all since they need their equity out of the property up front...the main disqualifier for a L/O deal.
I was actually getting it confused with a BMCC, but that would not have worked either since they would not have received all the money they needed.
I just wished them well and went about my way. At least I can be happy about the experience of sitting with a seller and putting together a deal (although I could not help them).
I think you have the hang of L/O deals...your understanding is right on target. Good luck in your investing.