Considering my First Deal - Lease Option
Ok, I am considering my first deal here. A little background:
- I live in a semi-rural town in Utah.
- I own (and currently reside in) an old 1800s farmhouse on a 1/2 acre lot.
- Current mortgage balance is $249k, payment (w/escrow) is about $1488, estimated current value is $360-380k
- I am software developer, recently switched from W-2 to 1099, which prevents me from getting a traditional mortgage for 2 years.
I have been considering selling my house and potentially moving further south where the climate is a little warmer. I'm not sure about this, but it was an idea. Also, my house is very old with lots of old-growth trees, and I really just don't have the time to care for it anymore. I bought it with all sorts of projects in mind, but I have found that I would prefer something lower maintenance and instead to focus on increasing my income.
The downside of a straightahead sale is that, now that I am "self-employed", I cannot get a traditional mortgage for 2 years. I would have to find somewhere to put that money in the meantime. My property would need quite a bit of cleanup, with all the downed branches and such, in order to sell for top dollar.
I put it up on Facebook as a possible rent-to-own (lease option). These are the terms of the contract which I would offer:
$20k - Option fee
$2100 - monthly rent, $450 of which goes toward equity at the time of purchase.
Buyer / tenant on the hook for all maintenance from day 1.
2-year lease term.
Sale price is fixed up front according to 2-year value projection (present market conditions). This allows the tenants to improve the property (with my permission) and get equity out of that.
I found a family that is willing to accept these terms, and they have several sons who are capable of doing the necessary cleanup on the property. I figured that, as a lease option, the tenants have significant money on the line, so they will care for the property much more than a standard rental. Additionally, I can sort of "move on" in my life, and decide where to live long-term, while still building equity.
Does this sound like a solid deal? What are the potential pitfalls? Naturally, if I chose to stay here it makes sense for me to continue to live in my own house, but I am looking for some flexibility.