Owner wants to sell 9 mos from now...best way to tie up property?

[Whitney Hill]

PROBLEM: Owner wants to sell to an investor, but needs to move out nearly 9 months from now. I need to come up with a good strategy for tying up this property while managing holding costs & risk (both the risk that market shifts drastically and the risk that I lose the seller)

CONTEXT: I'm an investor in Bergen County, NJ - my direct mail turned up an owner who plans to move out of state at the end of the school year (she's a teacher retiring). The house is a knock down on .3 acres in a prime location (12 min walk to NYC train) where a 4BR/3BA new construction will have an ARV of $950-975K (I have a modular builder to partner with). She was adamant that she does not want to list or work with a realtor (her mom lives with her and they have the tiny house packed with stuff) - though she has "called around" and thinks her house is worth maybe $450K when it's more like $415K as-is... so I'll need to reset expectations since my offer will be around $335K.

QUESTION: What is a good way to lock up a deal with her given her longer timeline? I'd appreciate hearing what you've done successfully in the past, as well as your feedback on the options I'm considering:

1) Get the house under contract, with closing date set for June after her school year is over. Any watch outs for long closings like that? I would want to make sure I could bail on the contract if needed...e.g. if the market tanks. She may require a non-refundable deposit and I'd consider that. I would use hard money to buy (and get construction loan from them later as well). 

2) Let her know what my cash offer today would be, then refresh the offer price when she is ready to sell (building rapport along the way by checking in once a month). She already knows that I can only guarantee a price for up to a month. I've done something similar with owners in the same town who are going to sell when the condos they want to move into are complete - they called ME a few months after our initial discussion just to check in and let me know they want to work with me when they are ready to move. So the soft sell may work... and would also give me more wiggle room to change the price if the market has softened. Risk is that she uses the next 9 months to call a bunch of builders and find one that will pay more than I will.

3) Offer to buy the house this fall and become her landlord until June 1. This would allow us to work on the plans & permits for the new construction so that we can basically follow her out with an excavator to immediately start the demo - to make up for some of that long holding time. Upside for her is that she locks in a price and gets her cash now (which could be useful for her move). I would have negative cashflow of around $900/month on the house (SFRs don't cashflow here), and added holding costs/time mean my cash on cash returns would suffer, but I'd still meet my threshold... unless of course the market tanks by then. My net profit would be right at 10% of ARV, so not a huge cushion...

[Marcus Auerbach]

@Whitney Hill - I would go with an "Option to Purchase", in Wisconsin that is a state contract.

In a nutshell, it gives you the option (an exclusive right) to purchase a property for a specific price at a specific time. For this right you pay an option fee, that is your cost for buying the rights. The option fee usually becomes part of your down payment, but is lost if you do not exercise the option. It can be as little as $1 or a really substantial amount - typically a similar amount as earnest money.

With an option you know that you will be able to buy the property as agreed and the seller doesnt have to worry about finding another buyer, as they have collected an option fee you would not want to loose.