Lease-Purchase: Becomeing a 2nd Hand Lender

[Chris Nowlin]

Lease Purchase Example- $100K Home w/ 10% down.

I'd like to work close witht lenders and have them refer me there "top reject" prospects. Ones that have the financial credibility, but are just short on their credit scores. I would like them to choose their own house that I will purchase and hold for them. (Giving them a reason to pay a premium rent.)

Assuming they are looking for an FHA, I'd like to take a 3.5% deposit up front. This will go to their down payment on the back end. It will also cover most of the closing cost if the deal falls through and I need to dump the property, preferable to a wholesaler where I can avoid real estate costs. The purchase price of the house will be negotiated to cover closing costs. As my girlfriend is an agent, we will roll her 3% commission into the down payment. Giving me an extra 3% equity off the top and reducing my necessary cash to $7,000.

I will rent the property to them at 11% of the selling price for as long as they need. The best candidate should be able to qualify to purchase within a year. Because this house will eventually become the tenants, all maintenance cost will be pushed onto the tenant. I believe this is called a triple net lease? (needs more research). For a $100k house I would be looking at a $350 cash flow. Plus approximately $140 in equity being built each month.

The contract will have an agreed upon appreciation value built in, appraisal allowing. Say 2%, providing an extra $2,000 upon closing.

Assuming the buyer pays closing cost on the back end and no agents are used, my numbers are as follows:

Final Equity- $11,700

Cash Profit-$4,200

Appreciation- $2,000

Initial Investment- ($7,000)

Final Profit- $10,900

Is this possible or am I missing something?

[Wayne Brooks]

You're not going to get non owner occupied financing for 10% down.  

If your girlfriend contributes her commission, as opposed to lowering the price by that amount, which wouldn't reduce your down payment, it will be taxed income to her.

Your exit strategy of selling to a wholesaler is crazy, they'll pay you about 70% of value.

If you're going to charge market rent, and trying to push taxes and insurance on the buyer/renter....good luck with that, outside of any regulatory issues.

You'll have closing cost on both transactions, and unlikely a seller credit will cover them all on the front end.

This idea just has too many problems.