Lease back risk - worth it in this situation?

[Anja Schepp]

Hi all! Recently saw a trending thread about this, so here's a fun case study for the community to support or tear apart. I am at the early stages of looking at the property: "motivated seller", large plot of good land, in a great area experiencing explosive growth even by Austin standards. With the length of the time it's been on market, I know there will likely be issues with the property, and am prepared to offer what I think is reasonable based on comps in the area, negotiate on repairs, have money for my anticipated renovation, and am excited to put in a lot of work in to fix up the little things on my own. I plan to move in and house hack the other bedrooms (2), eventually build an ADU in the back, occupy until I can invest in the next property.

I have not contacted to owner or selling agent about this property yet. Please vet the plan below first. A lot of details left out due to the length of the post.

I have a really cheap lease until April of 2022. I can break it for a fine, or I can afford both the mortgage and my rent.

I believe I have insight on why they're selling. Part is a small construction project on the neighboring parcel starting in later 2021 that will take at least a year or two. This bothers a family, but not so much myself and my target roommate audience. In fact, we'd be excited for a convenience store with quick access to a 6-pack.

More importantly, tax records that show they pay almost 4x the property tax amount as the surrounding properties. the taxation rate itself is on par with the rest of the city, and what I expected to pay, it's just the annual *amount* that currently varies hugely from this property to their neighbors. In an area of a lot of paycheck to paycheck families, if they expected a comparable tax to their neighbors before moving in 2018, an unforseen couple 1000s a year could easily create a need to sell.

I am working with a buyers agent, and hope she can help me negotiate a deal as follows:

-offer up to 12 months lease back - need to switch from "seller in possession" to "resident lease back"

-Take some of the months of the lease back as a reduction to purchase price. Lower price = lower mortgage and much easier time getting it cash flowing while I live there, and when it's 100% rented, which it still be for the majority of the years remaining on a mortgage. Austins rent/value ratio is garbage so this is an important consideration. They end up with less cash from the house up front, but unless they are in significant debt for other things they may prefer to stay in their home, and have a rent free period to catch up and look elsewhere.

- Then charge month to month at a mortgage rate to encourage them to make other plans if they haven't already. We all know people don't value/take care of free things. This will also move me from double paying mortgage and rent back to just rent. A very average rent rate for the area will cover the mortgage payment that I'll have.

- Talk to my lender about interest only loan options. I really have very little knowledge of these, but if I COULD couple that with the extended lease back/purchase price reduction, that would take my base hit to a home run.

I need to make sure my contract documents and covers all aspects of the home: condition, vegetation, fixtures and features etc, making sure I cover my liability for any damages they may cause in thier stay as much as possible. Likely hire an attorney.

I know I am taking an undue amount of risk doing this, and that my assumptions of why they are selling may be completely inaccurate. I do think everyone is motivated enough to make the sale to hassle a complex contact. I am likely the most flexible buyer they will get & know I need to get everything I possibly can in writing from all parties.

I would take solace on hopefully helping a family stay longer in the home they are having to let go, still end up with a property that I would enjoy living in, with a whole years worth of appreciated value in an awesome appreciation area already under my belt, and ultimately a property that gives me a great exit strategy as well as long term investment potential. All with a lower mortgage payment, and reducing hassle in the long term by allowing myself to be picky in the market for future renters. If I could comfortably get into the austin market without all of this, I would, but for many reasons ATX is best only if you're willing to put in the effort and get creative.

Appreciate everyone's thoughts!

I have checked most of my local ordinances and feel fairly confident I will be allowed to execute this plan, but happy to hear any concerns.