Would you take this deal?

Question

I have 32 rental homes up for sale in GA. An investor from South Carolina has offered the full asking price. He wants to do a 13 month lease/option while rehabbing some of the properties so they will qualify for section 8. He says he will then work with section 8 in order to help the tenants buy the homes as that is his companies mission. He will also use the 13 months to work with the tenants to get them qualified with is lender. All lease payments to me will be handled by a third party escrow company. After I get my lease payment, he gets the rest. His is not putting up any binder money as he says he needs his available cash to rehab the properties. If we do not close for the full amount in 13 months, all repairs are free and clear to us. He is using his own rehab teams so I do not have to worry about mechanics liens form subcontractors, so he says. Would you take this deal and what do I need to include in the contract?
These homes were inherited two months ago and I have no interest in being a landlord. I already have eight rental homes that I own that a management company handles. I am semi-knowledgeable about what I need to do but I just don't want to get scammed.
Any advice would be greatly appreciated.

Shane

Any advice would be greatly appreciated.

Bob Jones · Answer

Thanks for all your responses!!

We did not take the deal. Just too many unknowns.

Ute Carter · Answer

Easy one to answer.

No binder means no contract and equals no deal.

Ask him to put his money where his mouth is. A 10% non-refundable deposit held by YOUR title agent. Also a waiver of lien as well as a waiver of liability for any injuries that may occur during his 'rehabbing' using his own people.

See your attorney to draft a workable contract or RUN.

Mark N.A · Answer

So if you already have rental properties under a managment company, let the management company handle your 32 extra properties until you can sell.  If the properties are in another area, find a good PM there.

Were it me, I would try and sell the very best properties myself and keep the commission.  List the others with a realtor to get the MLS exposure.

If you're looking for a fast sale offer the properties at a significant discount to market.  Both investors and homeowners love buying something with 'instant equity'.

But I agree with the other posters here.  It seems you have plenty of uncontrollable downside without much upside with this deal.

And really, it sounds to me as if you have enough resources to consult a qualified attorney and advisor.  Although I'm sure we all appreciate your confidence in our opinions.

Michael Rossi · Answer

In my opinion, all of this comes down to how desperate you are to sell and what you KNOW about the lease option "buyer".

If you are not desperate to sell, then I would suggest advertising these rentals at your local REIA (real estate investors associaion).  There should be plenty of cash buyers there that can buy your rentals, if they are offered at a nice discount.

If you are desperate to sell and want to consider the lease option deal, then I would do some serious screening of the lease-option "buyer".  Don't be afraid to ask for tax returns; get a credit report; do a criminal background check; and ask for proof of experience.  If this lease-option "buyer" is a relative newbie (and I'm betting he is), then I would NOT do this deal.  The vast majority of newbies fail in this business and a newbie has little chance of succeeding with such a large project.  If you can determine that this lease-option buyer is a very experienced and successful investor, then the deal might be worth pursuing.  In this case, you will need to CAREFULLY structure the lease-option contract and be sure that you cover yourself.

Good Luck,

Mike

Jason Hanson · Answer

This does not look like a good deal for you. I would never let someone rent-to-own or take over my properties without putting any cash down.

Of course as investors we always buy with no money down, but we do not sell this way.

I would only do this, if the investor put a lot of money down. He needs to have some skin in the game, or he is more likely to walk away if something goes bad.

Ralph S. · Answer

If he uses his contractors for the repairs he wants, then doesn't pay the contractors, the mechanics lien goes against the property.  Sounds like a large liability without any control.

Would you really want someone else chosing what work gets done, by a contractor of their choice, at a price they agree to, that could end up as a lien against your property?

I don't see where this buyer has any skin in the game, while your exposure is tremendous!

I agree with the others who say  :protest: and find another way, or ways, to sell the properties.

Frank Adams · Answer

For this to work either you have to rent to him for less than market, or he had to sub-lease at over market. Why would you do the first? What makes you think he's capable of doing the latter?

Meantime he's got 32 tenant's rent money for a month plus security deposit. At even $800/month per unit (low in the US) he could have $48,000 and YOU would be responsible for the tenant's security deposits.

It sounds to me like you're trying to sell us on it being a good idea. None of us have anything to lose if the deal goes south, and I just don't see any particular advantage to you. If someone made this offer to me I'd take less than 5 minutes to reject it.

all cash

Bob Jones · Answer

What is he trying to do?

It is a third party escrow company of our choosing. After we get our agreed upon lease payment, he gets the rent money that is left over. He would be leasing the properties and paying us our lease payment. The escrow company would collect the money and cut us our check first then he gets what is left.

Is he trying to get control so he can scam the tenants? If he is 30 days late, the lease terminates.

What could he do that would cost us more than one months rents if he is not legitimate??

Shane

Frank Adams · Answer

Did you run the numers on your own properties to see if that purchase price even makes sense to an investor? That would be my first step.

Have you done any kind of analysis on the houses as far as needed repairs? Do you think it's likely that he could really increase the value enough in a year to turn a profit on them?

Of your choosing? Or his?

The rest of what? I don't understand this statement.

At this point I stopped listening to him, as you should have. He's testing you to see how big an "S" (for sucker) you have on your forehead.

"He says", well he's dead wrong. Since what he says on this point is complete BS I'd assume that much of what else he's said is as well.

Unless you really want to cash these things out quickly, which he doesn't offer to do, just sell let the agent sell them as he gets offers. It's not like you need a grand tax strategy since you inherited "stepped up" basis. In fact I'd be offering all the tenants a chance to buy them on really good terms, low down owner finance. You don't need an agent to do that.

After re-reading your post, and my answers I don't think I'd have any interest in this guy. Not saying you have to run, but I'd walk away from him.

all cash