Lease Option - Rented Below Market
I am planning to lease option a property where the owner just rented it a month ago to someone for $1,500 out of desperation to get it rented quickly, when the market rent should be about $1,800 to $2,000. I am not planning to live there and plan to sublease it, but the tenant signed a one-year lease for the $1,500. If it was empty, I could easily offer to lease it for $2,000 a month and then sublease it for close to that. But since it's not empty and the tenant has a one-year lease, what amount would be more attractive to the seller than just keeping his tenant and not selling the place? I was thinking of simply offering a higher purchase price at the end of the option in return for keeping the lease amount where it is, with an agreement that if the tenant moves out after a year and I re-sublease it for, say, $2,000, the owner can have 10% of that $2,000 on top of the $1,500 ($200 extra a month). Any advice would be greatly appreciated.
How are you planning to lease the property, when there already is a valid, legal lease in place? You could buy an option on the place where you offer to L/O it in a year, but there are contractual obligations in place now that you can't get around.
[addsig]
The guy leasing it is just renting it and has no plans to buy it. A new lease would need to be made to me and his lease would need to be amended to become a sublease. ( This is assuming that before this all takes place, he hasn't decided that HE wants to lease option it. But apparently he doesn't as of yet). This is just a sandwich lease.
Just some points to ponder:
1) It appears that after paying the extra $200/mos(of the hoped for$500/mos increase) to the current owner, you are looking at an "opportunity cost of $300/mos or $3300. over 11 mos.
2) To get the immediate higher rental you may incur some of the following costs- painting, advertising,rental agent commission, possible additional assoc. fees etc.
The last thing you want is a disgruntled tennant in "your" property with all of the structural & legal expenses that could mean. May I suggest: 1)Offer the tennant a cash incentive to move on ( eg $200/ mos for the remainder of their lease) 2) Get the seller to reduce the selling price by 50% of the opportunity cost3) go for a longer closing (90 - 120 days) so that you will be less disadvantaged4) bring in a partner but certainly offer less than 50% of the equity on this project. Step back from the deal - if this purchase price is as good as you think it is & it ranks 12 out of 15 on your deal scoring card - don't loose a good deal for what is possibly a small percent of the purchase price. If it was already marginal - rescore it and if you cannot get concessions - walk away. The current owner appears to have written a legal lease. Accept it & work arround it. The fact that he was in a panic to rent it might be a warning that you could not easily rent it for $2000./mos. Best of luck.