Possible Lease Option - Posted by James (FL)

Real Estate Investing
1

Posted by James (FL) on July 03, 2003 at 09:38:41:

JohnBoy,

Thank you for the insight. I did not realize that I was cutting myself so short. She was referred to me by a friend, so maybe I had a little shade pulled over my eyes. Thank you for opening them back up. I am running a business, not a charity!!!

I did leave myself an out, and told that her some friends of mine that are investors might be willing to do that for her, but in the end I would have done it myself it would have been worth it. I can now just tell her that my colleagues said it was too risky, and they would need a much higher sales price.

Thanks again
James

2

Possible Lease Option - Posted by James (FL)

Posted by James (FL) on July 02, 2003 at 21:32:24:

I ranan application today for a woman wanting to purchase the home she is living in. Here’s the situation. The home was her Uncles and he passed away approximately one year ago. After going through probate etc, ,it now belongs to his four children. They want to sell it. 6 months ago, she offered to buy it for 80K and they accepted. The appraisal came in at 96K and I’m pretty sure it was a leveraged appraisal and the comps I see could make it go for over $100K. She started working with a broker 6 months ago, ,and her credit was above 500. (I could have done the loan then) The broker gave her the run around for 6 months now, and her cousins are fed up and gave her 15 more days (as well they deserve to) or they are putting it back on the market for 95K. I ran her credit today and she now has a 492 and I cannot help her. There are two recent collections in the last 3 months that I am sure dropped her below 500. She told me she will do whatever it takes to not have to move out since she moved in 6 months ago. I offered to purchase the home from her cousins for 80K on a 100% loan, and she will cover my closing costs. I would then set her up on a lease option for 2 years at 90K. Her payment will be my PITI plus $100. In the lease option, she will be responsible for all repairs also, giving her the pride in ownership since she will be purchasing it. I contacted her rpevious apt complex where she paid her rent on time every month for 4 years so I am hoping for the same luck. Would anyone else do this deal, and if so, is there anything I am leaving out?
This will be my first L/O deal.
Thanks in advance for any and all responses.

James (FL)

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Re: Possible Lease Option - Posted by JohnBoy

Posted by JohnBoy on July 02, 2003 at 23:35:05:

NO! Where’s the beef?

She has a 500 score which says she has bad credit. Then she has two more collections in the past 6 months. She doesn’t pay her bills! How can she pay to keep up the property when she can’t pay her bills?

And you want to obtain an $80k loan in YOUR name, where you can get $100 per month for two years and a $10k payday on the back end? That’s a potential profit of only $12,400 over TWO YEARS! And this you are willing to gamble on that all goes to plan based on having LUCK that she performs???

To even consider this deal, I would need at least $5k up front from her, and the option price would be at least $115k. If she can buy in two years then her $5k option money would be deducted from the $115k purchase price, leaving her a balance owing of $110k to buy the property. That would allow you a potential profit of $37,500 over two years and that is if everything goes to plan with her performing.

You said you have comps to support $100k+ now. Two years from now the property should comp at $110k - $115k.

Are you running a charity for people with bad credit that don’t pay their bills or are you running a business? She carries to much risk to consider anything less and even that is a big IF.

I wouldn’t do this deal for a person with excellent credit for only a potential profit of $12,400 over two years, muchless someone with bad credit and recent collections within the past 6 months when they knew they were going to need new financing to buy the house.

She “might” have been able to buy this property for $80k had she not allowed her credit to get worse than it already was. But she didn’t do that. Instead she allowed it to get worse. Now she can’t buy squat! To buy this for $80k yourself and L/O to her for $115k getting $5k option money up front would be a GIFT to her at this point. It’s either take the GIFT you can offer her or move on.

Even at these numbers you run a high risk of her not performing and getting stuck with repairs and paying the mortgage if she doesn’t perform. You could easily lose $12,400 over this should she become a problem. She is not worth the risk of hoping to get lucky she performs.