Investors Using Option to Buy to Fix and Flip

[TJ Fries]

While doing some research, I came across a concept for flipping houses called the Option to Buy, which I assume you're familiar with. Purchasing the property after leasing it. Through my research, it seems like an investor using this method would agree to say, 1 year lease. During this period, the renovations would take place and then the house would be relisted. All the while, the investor is making lease payments to the original seller. And after the house is fixed and sold (assuming it's sold in under 1 year from purchase), the investor would pay the original seller the remaining balance. Does this sound correct?

Does this sound like an option for a new investor (like myself) that has almost no/very limited funds to use?

The way it's working in my rather simple brain is this:

Figures:

Buy Price: $50,000

Rehab: $30,000

ARV: $150,000

Rent payments for 12 months + Rehab costs, funded by HML.

Have an agreement with a seller to purchase the property after a 1 year lease period.

In that year period, rehab takes 6 months, and another 6 months (hypothetically) for the house to sell. 

I make lease payments to the seller during the rehab and relisting period.

After the house sells, I pay the original seller the remaining balance of the purchase price after the lease payments are deducted from the original buy price.

I pay back the HML and keep the remaining profits.

I'm sure it's not that simple, but if I'm off on anything, I welcome any input about using this method as an investor to flip a house.  

[Jacob Hornberger]

I agree with @Kristi Kandel, it could be pretty risky to dump a bunch of money into a property that you are still technically leasing. Also, you may be hard to find a landlord that is willing to allow you to do a substantial amount of work on a property.

A similar strategy that may work better is finding a seller willing to seller finance with little to no money down and possibly interest only payments for the first year. You could then continue on with your original plan from there.