Financing a Deal for my Tenant

[Jeff Null]

My realtor called me today with an unusual proposal. I don’t even know the terms to use to search the forums for more information, but I would be happy to search history for suggestions.

I own two small commercial properties and I have a line of credit on one of them so that I can immediately offer cash on something new that comes along.  My realtor knows this.

There is another property that I was interested in last year that I could get for $120,000.  It has a tenant who has been trying to purchase the property herself, but she can’t quite swing it yet.  The existing owner is getting impatient and has indicated to the tenant that either she needs to buy it now, or he is going to put it on the market.

My realtor approached me to see if I would be willing to buy the property for $120,000 and immediately turn around and offer to do a rent-to-own deal with the existing tenant.  She can pay $8500 down and the agreement would be to purchase for $140,000 within the next 12-18 months.

My LOC interest rate is 5% and the tenant would pay around 5.5%. I would have all of the ownership of the building if she fails to pay at any point. I am not clear on what she is paying in rent right now. I am sure it can be negotiated.

If the deal falls through, the realtor says the property could lease for about $1000 per month.  There are actually two buildings on the property - one where the tenant is that she has invested money into cleaning it up.  The second building is in terrible shape, uninhabited and if necessary might be spun off and sold for redevelopment.  The location is good.

I can see how closing costs could consume a chunk of money and this ties up my line unless I pay even more money to get my bank to finance this.

What is this deal called and is it a good idea to even consider?  What additional facts do I need before pursuing this?

Thanks!