Lease Option or Sell?

Question

Hello BP and thank you for any replies.  I've researched the forums but couldn't find a solution to my particular situation.  I'm also new to REI so Lease Options and other strategies are still a bit foreign.

Situation:  First time home buyer in 2015 and mortgaged about $80k (paid retail...didn't know better).  I still owe about $70k and est. value around $95k (remodeled kitchen/dining room).  Lost job and had to move across state in 2016 for work but rented it out; currently rent is $975.  My neighbor recently messaged me asking if I would be interested in selling.

Additional info:  My mortgage is about $650 w/taxes.  Since I'm across state I needed property management (10%).  Do do maintenance and repairs I've only been able to break even if not some loss.  $975 is on the  high end for the area.  Advantages to neighbor:  No management company/fees, can do maintenance/repairs himself.

Question:  Am I better off selling the property or trying to structure a lease option to nurse some sort of cash flow?  Any other strategies you might suggest?  I know it's an emotional response but my neighbor is a good guy and I want this to be a good deal for both of us.

Thank you BP!

Marc Winter · Answer

If you are thinking of doing a lease/option with your neighbor (who is a good guy) I'd think twice.  Why turn him into a tenant?

Sell that property, and buy or house hack or do a lease w option for yourself in your current area.  Learn what you can her in BP and in your local REIA or other RE meetup, and put that knowledge use in finding a great deal.

Good luck!

Brendon Woirhaye · Answer

If you are breaking even and don't see any change forthcoming, its a good idea to think about selling and realizing a more effective use for any equity you have in the place.  I am skeptical that you can turn a marginal investment into a good one through lease magic.

Grant Rothenburger · Answer

@Andrew Scott Hard to say without more details but from what you said, selling at market value sounds like your best option.

Andrew Scott · Answer

Ah, ok.  My starting price point is a little more that 100x rent (room for negotiation) but he and I have alternating schedules so it'll still be a week or so before we can really discuss purchase options.  Just wanted to get have a back up plan or two.  Thank you!

Andrew Scott · Answer

@ Jorge De Jesus,  Sorry for the confusion.  I can sell it to him out-right and he can mortgage with 20% down but with my [limited] understanding of lease options I thought I might be able to approach him saying he could buy the option with 10% down and work out the other terms.

As Brendon mentioned, it sounds like it might just be more hassle than it's worth and I don't want to put him off trying to force the L/O.  It's not an expensive property but I don't know his finances.  Just rolling around ideas.  Hope that clarifies.

Andrew Scott · Answer

@ Jorge De Jesus, Yes.  I currently have a tenant that wants to stay.  This would give my neighbor immediate cash flow and without having to pay the added expenses of property management and contractors, he'll be raking it in.

Just trying to find the most appealing way to get the property over to him.

Lease Option or Sell?

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