First Lease Option or Subject-To Deal

[Brittany Whitney]

Hi all,

I was just approached with a house (3/2- 1680 sqft) that the owner needs to get rid of ASAP. They're 5 months behind & facing foreclosure soon. She said she would be open to subject to or a lease option. My dilemma is that I'm not sure how good of a deal it is because of the numbers. She's behind $8K in payments & remaining mortgage balance is $138K, tax value is $184K, & ARV is $170K. Do you all have any tips on what I should do? I don't have any buyers lined up & this would be my first sub2/lease option deal. Also, I'm in NC & I'm talking to my lawyer on Tuesday to take the right steps, legally speaking. If anyone has advice, I would definitely appreciate it!

Thanks!

[Mitch Messer]

Hi @Brittany Whitney. If there is a deal here, it's very thin. Between the mortgage balance and the arrearage, you'd be in this for about $150K. With an ARV of $170K, that's only $20K of spread. But:

1. Homes that are behind like this typically have a ton of deferred maintenance. Not surprising: If they're not paying the mortgage, they're probably not taking great care of the house either. Plus ...
2. That $8K in arrears over 5 months sets the mortgage payment at around $1600. Unless comparable rents are $2000+, your monthly cashflow won't be great.

Had you caught her 4 months ago, there might have been time to make some moves. But, given all this, I'd recommend leaving this one alone!