Need Advice on Creative Financing Strategy - SFR

[Jerry Rode]

Situation:
A family is looking to rent a larger single family home for up to 2 years (international family on work visa until end of 2013). They currently rent at $2400 per month in my sub-division and want to rent in same subdivision.

A home is for sale by a couple that is moving out of town rather soon. They are under pressure to sell asap, and the international family loves their home and would like to rent. Seller is not looking to rent their $225k home.

I want to buy seller's home at a reasonable investing price and rent to international family for the next two years. Trouble is, I do not have all of the necessary down payment and do not feel that a bank will give me a mortgage on a home if I have to take out lines of credit on other rentals to come up with the down payment & closing. That whole, take a loan to get a loan theory.

Here is where it gets interesting. International family may be willing to pre-pay their rent, providing me with a lump sum as down payment on the home. Does this lump sum need to be 'seasoned' or because it would be written up as prepaid rent a bank would be more willing to write up the mortgage?

I'm open to suggestions!

[Aaron Mazzrillo]

Hey Jerry,
You have lots of opportunity here, but we need to know more about the situation with the seller. Do they have equity? Do they need money to move? Have you even spoken to them and offered them anything? If they don't sell by the time they move, what will they do?

I might first offer a lease option with right to sublease. Lease the home from the sellers at a lower price than market rent. You can negotiate all kinds of attractive terms in the lease. Write up a separate option to purchase the home at some point in the future. If things don't work out with your target people and you can't figure out what to do, you don't have to exercise the option.

You could buy it on a wrap. Your sellers leave their current loan in place and create a new loan that wraps around their existing loan. You really need to know what the terms are of their existing loan before you go this route though. If any of the current loans are adjustable or balloons, this will not be a viable solution for them.

You could go for a sandwich lease. Lease it from them at a set price, then release at a higher price and collect on the spread.

Also, I wouldn't do the deal based solely on the idea that this international family is your exit strategy. Things may change with them and then you have a house and will need a new plan.

If you are interested in any of the strategies above, I highly encourage you to seek out David Tilney. He teaches sandwich leasing, has excellent paperwork, and is a very reputable person.
Happy Investing!

You say they only want to stay 2 years. What will you do then?