Selling on Lease-Option? Feedback would be appreciated.

[William Salas]

Hi!

Calling all lease-option pros!

I have a single-family house that is currently a short-term rental but it's just not making the amount of monthly cashflow it needs to be worth the extra hassle.

Now, could I keep it as a regular rental?

Yes, but cash flow would be a few hundred bucks a month at best and that's if nothing breaks.

This was a 1031 exchange as well. I sold a property in Chicago and exchanged the funds for this property in Fort Lauderdale.

My idea (feel free to poke holes in it) is to lease-option the property in April to someone who is willing to put down 10% for the Option.

The house is worth $650k, so 10% is $65k down.

It has a pool, 3 bedrooms, 2 baths, and is in great shape with recently remodeled baths and kitchen. It's a nice house in a nice neighborhood.

I would give them at least 2 years to exercise the Option.

I know I'll have to pay the capital gains taxes the year they exercise the Option (or could I do another 1031?)

The benefit to me of selling it on a lease-option today would be the upfront $65k cash and getting someone in there who will take care of the home because they are planning to own it.

It's common to allocate a certain percentage of the rent towards the principle, right? What's a good number?

I also heard it's a good idea to make the purchase price at the time of exercising the Option contingent on appraisal. Yes or no?

Thanks in advance!