Structuring A L/O Sale On A Fixer-upper
We just picked up SF house that we had intended on using as a rental, but it needs more rehab work that I really feel like putting into it, to bring it up to the standards of the properties we usually rent. I read Bill Bronchick's article on this site, "Lease Option a Junker" and it seemed like that might be a good way to handle this property... however I am not really sure how to structure that kind of L/O deal. I have been doing my reading, but I still can't quite figure out how a buyer would be motivated to make lease payments on a property that they are not living in. If I can't figure out why they should do it, I sure can't sell it!
Has anyone handled this kind of L/O sale before? Any insight on how to structure this would certainly be appreciated. 
Sorry, I should probably add a little more datail here
We got the house for $70K w/ 100% seller financing, and $5K cash back at closing for repairs. The unit needs about $10K in repairs total; FMV once it is fixed up would probably be around $80-85K, as a straight rental I would probably get around $950/mos.
I've sold similar houses that I bought cheaply on CDs, and advertised them as "Handyman specials." I'd definitely consider describing yours as "Rent to Own," (a more accessible way to describe "Lease Option"
but beware of a buyer/lessor who just wants to get in and won't do the work or make the payments. I'm kinda new at this too, but I'm already in the process of evicting someone now who I guess didn't feel sufficiently invested at only $2000 down; he hasn't paid a dime since July closing. Be sure you get good up front money, at least enough to cover eviction expenses, if it comes to that. Might want to consider a thorough check of refs and credit too. Not trying to discourage you, just keep both eyes open.
Don't give a Lease and possession until after the work is done.
They make payments without living there for the time being, because they pay little or no down and get sweat equity that they create.
[addsig]
So, I would do something like:
Down payment: $0
Work to be performed aginst written contract for specified purchase discount
Lease terms: ?
LOK, If I'm not giving them a lease until the work is performed, how/why are they paying me during the renovation?
I have seen option agreements that specify the exact work to be done and by what date it is to be completed. If you write it in your option agreement (and of course it must be professional standards and pass your inspection) they are then obligated to perform the work or the option is void.
If the person is putting in sweat equity, then usually your option fee is almost nothing. Some leasees also pay for the materials if the repair materials are expensive or the leasee pays for the materials and adds it to the purchase price.
I have never heard of making them perform the work prior to moving in.
Brenda
Bronchick used to have nothing but trouble doing this. He would receive all kinds of promises, the Tenant would move in, and the work would not be done; then he would have to evict. He finally realized that if he wouldn't give possession to his potential Buyer until after the work was completed, the work was done quickly.
Yes, that is what he is saying in the article that I was referring to. It sounded good when I read it but after I thought about it I couldn't make sense of how to work it. Perhaps it's just not all that realistic.
Thanks to all for the info and the comments!
Hi everyone:
Why not just flipp the property
to a re/habber and walk with a few bucks
in your pocket .Rather than loosing sleep
over renters who won't do a thing no matter what you offer. Been there done
that 3 times no more just www.flipp.Good
luck and have a good day.
Because in this case I am the rehabber. There's not enough margin in there for me to get out of it w/ a straight sale and still make a profit -- it would make more sense to do the work and hold it as a rental.
Do you get private messages? I sent you a private message w/regards to investing in Syracuse. Thanks.
Thanks for these posts/topic. Gave me some great ideas. I just put a duplex in Buffalo under contract that needs some cosmetic rehab and had no clue what i was gonna do with it. May try doing this. Do you know any good rehabbers in the Buffalo area Syr? Don't know how close you are to there. Thanks again.
Jamie