A sandwich lease where home has no mortgage.

[James Myers]

I am thinking about approaching a gentleman (known 18 years) about a sandwich deal. I am not looking for a subtenant option but maybe an option for me. There is no mortgage and wants $220K, which is equal to comps except that the comps have had renovations and his is still original from the 90's. I am not able to get him to come down on what he thinks he should get so I am thinking of offering a sandwich lease in order to capture some passive income he is missing out on. Since he is not going to get his asking price he is not very motivated to sell and I have mentioned multiple times that he should rent it out but again no motivation. The property has been unused for 2 years, still has furniture and will require some updating/cosmetic work to be rent ready but it seems like a great option to avoid the lender process on my side. Plus it would save him money if I paid his taxes, insurance and HOA fees.

What would be a good deal to offer him since he has no mortgage and is unmotivated to move in any direction?

- Rent would be approximately $1,350 a month (3b/2.5r and two car garage) and owners current annual expenses are approximately $5,500 with taxes, insurance and HOA fees.

- HVAC and hot water heater are 15 years old and appliances are that nasty beige and needs new carpet and paint.   

- Rent ready expense $10 - $15K

As a lessee...

- What type, if any, insurance would I need while subleasing to cover any liabilities (tenant sues for some random reason)?

- Can I set up a fixed option amount within the lease and capture any overages if I do end up able to sell after lease term?

- I think this is a better option than self financing with him at a lower value with added interest to get him to his price just due to time constraints on mortgage term plus the numbers seem to make more sense based on the passive income captured through a good lease deal.

- How do I avoid him from selling while under lease?

- Should I pay taxes, Insurance, and HOA fees myself to ensure they are paid?

As an owner...

- Will the owner be able to depreciate his property during the leasing term?

[Amanda G.]

I ran into something like this. What was painful for me to learn, but will help me going forward is that unmotivated is unmotivated. You could give this gentleman $230k and he would still feel taken advantage of because he doesn't want to sell. 

From what you say, it sounds like you might want to live there. Since he is a friend of yours he might be open to letting you rent with some sort of credit towards buying the place in a year or two. But you are still going to be stuck with the need to replace HVAC, and water heater and polish up the interior. This sounds like no deal unless you have a non-financial reason you want to live there.