creative financing - lease to own option

[George Kleist]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $225,000

We rented the home for about 5 years, but in year 3 we took a lease option to purchase and executed the option close to year 5. Creative financing deal: The seller allowed a gift of equity of 20% $45,000, but we had to pivot and add a private note for 10% $22,5000 at 0% for 5 years due to a delay in closing (credit union delays in underwriting) and the owner had a capital gains realization as 5 years had passed since they left the home and no longer qualified for homeowner status.

What made you interested in investing in this type of deal?

ability to get equity in a rent-to-own option while I fixed my credit to get conventional financing.

How did you find this deal and how did you negotiate it?

brother in law was the owner and he let us rent a spare room when I lost my job, when his work relocated him he offered us the lease, and when he was thinking of selling it to avoid cap gains I asked to do a lease option and close before year 5.

How did you finance this deal?

Used Conventional Fannie Mae Loan with Navy Federal Credit Union had the best rate for 625 fico at 80% ltv in June 2018.

How did you add value to the deal?

We offered to pay for cap gains expense over time sharing in the equity growth to offset the previous owners out of pocket expense at the end of 2018

What was the outcome?

We have the home and it keeps appreciating in value and increasing our net worth.

Lessons learned? Challenges?

Check your credit often, and pay off your IRS tax dues before they become tax liens. There is nothing like homeownership as we learned during covid and had to ask for forbearance due to layoffs. Luckily our credit union waived the interest and added to the back the principal owed a write-off for them of over $9-14k not really sure.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Just when at the time was not licensed, but as of last month 7/26/2022, I'm happy to say I renewed my license after almost 10 years off doing real estate. I'm here to help anyone with a real estate question or who could use my services.