Accept house as option money / down payment?

[Tyler Proffet]

Hey everyone,

We've created an interesting deal and I was wondering if anyone else has executed anything like it...

We recently bought and rehabbed a house (we'll call it "Walnut") for about $70k. A young couple found us posting about it on social media. They've been renting to date (paying $1,100/mo) and want to buy, but don't have good enough credit - or a down payment - to qualify for a bank loan.

What they DO have... is a house (we'll call it the "Flint house").

'Grandma' owned the Flint house mortgage-free and was selling it on contract to the current residents (*not our young couple) for $500/mo. When Grandma passed, this young couple inherited the house and Grandma's contract with the buyers.

Flint's buyers pay on time every month, but our young couple want to get rid of the "baggage" that comes with it before they try to pull off a foreclosure. (There's a tiff between them about delinquent property taxes, trash piling up, the contract never got filed at the courthouse, "Grandma said she'd pay this/that," etc.)

We've verified both sides of the story and consulted with our local real estate attorney. Enter creative financing! The young couple and Flint's residents have agreed to the following offer:

We will accept transfer of ownership of the Flint house from the young couple as option money for a 6-month lease in the Walnut house (at $800/mo), and also apply a $10k reduction in the $95k purchase price when/if they follow through with a SF contract with us at $750/mo (we estimate 5 years before they'll comfortably qualify for a bank loan). We'll also sign a new SF contract with the Flint residents, starting at what they owed at the end of their former contract with the young couple... $46k at $500/mo.

Our bank tells us that, because we've already signed another seller-financing agreement on another property earlier this year, we can't lead this Walnut deal with another SF contract because we would be considered "lenders." Thus, to avoid that rigamaro, the 6-mo lease option would carry us into next year, which would make us eligible to revert back to an SF contract on Walnut. We won't have a bank mortgage on Flint, so it won't be counted (as far as we know).

The current contract with the Flint residents will be nullified by them signing a "Deed in Lieu of Foreclosure," thus transferring their ownership interest back to the young couple long enough for them to sign it over to us... at which point, we would immediately sign the Flint residents' new SF agreement with us.

Flint's folks get to keep their house, the young couple get to try on Walnut for size, no one has to come up with a down payment, and we get 2 cash-flowing properties out of the deal!

Has anyone else experienced anything like this? Any examples of how to incorporate transferring a property as option money in a lease option agreement?

Any thoughts or comments are welcomed and appreciated!

Thanks!