Lease Option Strategy
Lets say you purchase a nice $150,000, 3/2 single family home in a desirable neighborhood, using a mortgage broker. Now it's understood that you don't pay Fair Market Value for the house. I'm still looking for a motivated seller. Your closing costs are about $4000. The seller is aware that you are using this as investment property and has agreed to let you show the house to potential tenant/buyers prior to signing the Sales and Purchase Agreement. I will get pre-approved from the lender and have a letter stating that I'm qualified to borrow the purchase price. Here are some benefits as I (newbie investor) see them.
1. My lease/option upfront unrefundable deposit from my tenant/buyer will cover the closing costs.
2. No concerns with the seller clouding the title, and causing problems for my TB.
3. Greater number of potential deals, as the seller is cashed out and walks away at closing with their equity. The key here is finding that motivated seller and using this leverage to get a decent purchase price.
4. I will to make my profit on the payment spread and the backend.
I have a 774 FICO and my only debt is my house payment. My income to debt ratio is currently about 17%, not counting my wife's self empolyment income. I'm looking for some ideas on what type of financing is available for an investment purchase in these circumstances.
This could be my first deal. I see limited risk, but I'll tie up some cash for the downpayment on the property, until my buyer gets qualified for a loan.
Any comments from the more experienced investors would be much appreciated.
I can't believe that none of the gurus have shot holes in my strategy yet. Admittedly, it's not all that creative, since I have some money to finance and credit to finance.
L/O aren't that hot of a topic and your FICO score and DTI is something many people don't have...so they opt for more creative ways of doing things. There is nothing really wrong with what you proposed, it just requires money and lenders....something a lot of us don't have access to. I accomplish the same thing you want to do with a sub to, only with a lot less money.....and out of pocket costs.
Nebulous,
Thanks for your response. I would rather do it your way. You gotta find just the right seller or make many offers and presentations to find them. They're out there.
I've never done this, so I need a clean deal. It will introduce me to half of the process with only some risk. I will use more aggressive techniques after I'm more comfortable. Then again, if you aren't using your own money, you might argue that you have less risk, and that is a good point.
If this was easy, everyone would be doing it.
Stock market is picking up again, and people are getting brave. This may be a good time to enter real estate investing, while so many are chasing those stocks.