Sale of Primary Residence - Lease Option

[Marcus Auerbach]

I am at a decision point and would appreciate your thoughts (I am so glad I am a bigger pockets member right now): I have a home on ten acres for sale. It has been a three year / 200k fix and it is set up for horses. If the house would have been in a subdivision it would have sold a long time ago, but there are only so many people interested in a horse property. Showings have been rare and we have not seen a single offer, so we kept lowering the price from 625 to now 550. The house gets excellent feedback and Its a good deal at this price, but it needs a special buyer I guess. (I had people complain about the size of the yard - too big). I also have bought a new home last winter and really would like to move at some point and take the equity of my old home.

By chance I found a buyer, he happens to be a real estate investor, who is interested, but cant get a 30 year loan at this point. The story: C-corp, small W2, waiting for next tax return. We agreed on a 6 month lease option, with 3k rent and 5k monthly (!) option money. I asked him to get a bank pre-approval, and that seems to be an issue, because he came back and asked for 18 months.

While I am inclined to consider the request (at 3+5k monthly) my problem will be that I will not be able to obtain another 30 year mortgage, because of my own debt/income ratio. I should mention that I am a fast growing buy&hold guy and also my bank wants to see a full year worth of taxes before they are willing to acknowledge the additional income. So, I am limited to 5 year ARMs..

I like 18 months better than 12, because it would put the end of the terms into spring and not fall, so asking for 12 month would no serve me that well.

Though nut to crack... Would really appreciate your thoughts guys! 

[Anthony Dooley]

I've done it, but I wouldn't do it if I were you. Lease/Purchase Option is not "rent to own" as Brian eluded to. Dodd Frank does not apply.

The guy is basically renting your house on an 18 month lease. If he can qualify for a mortgage during that time, he has the option to buy it, but he doesn't have to. It's his option.

What I don't see in your description is option money. The tenant/buyer buys the option with cash up front, which is non-refundable. I would want 5% of the purchase price.

 If he buys the property, the $25,000 option money goes toward the purchase at the closing table. If he doesn't buy, or violates the terms of the agreement, he forfeits the option money. This way, you are happy if he buys it, and happy if he doesn't. Otherwise, you are taking your house off the market for 18 months to rent it out. Not a good plan.

The other answer to your problem is sales price. You are asking too much. Lower your price and sell the property to a qualified buyer. The lease/purchase option is the long way to sell it.