Lease w/ Option to Purchase Success

[Alan Y.]

Investment Info:

Single-family residence buy & hold investment in Trafford.

Purchase price: $60,000
Cash invested: $12,000
Sale price: $131,000

SFH with equity that needed some repairs.

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

I read a book on lease-options and thought it was the easiest and most profitably way to break the ice in REI. This was accurate! Not only did my wife and I learn so much by doing a lot of the rehab, but we also learned how to manage tenants during Covid. Literally, the month we approved our first tenants was 3/2020. It was as profitable as advertised. Tenants weren't difficult until the end when they could not purchase. I kept option consideration and half of new boiler cost.

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

Zillow.com. House was sitting for at least 6 months and went from $107,500 with an appraisal that supported it, to $79,999. Offered $60K and it was approved and finally closed 6 months later. Owner lived in Thailand at the time and communication was rough, house was totally outdated (cosmetically) and had some knob and tube so I think other investors lost interest. It was worth the wait for us!

How did you finance this deal?

20% down conventional loan, 15 year fixed.

How did you add value to the deal?

Ripped up old carpets and laid new laminate flooring all throughout, new trim, a lot of drywall work due to lack of temp control, new paint all throughout, added wainscoting over tile bathroom and hallways as easy and inexpensive fix. Waterproofing the basement. Cleaning out house and 2 car garage.

What was the outcome?

Tenants moved in 4 months after purchase on a 24 month rent to own contract. Tenants really mostly kept to themselves and paid all their bills for the most part on time and stayed ahead on utilities. We had to change the boiler so we split the cost. Tenants ultimately broke up during tenancy and could not afford to buy the house at the end. They were a little upset about the boiler but it was part of the provisions in the lease. Sold house at top of the market after for $20K more than R2O price.

Lessons learned? Challenges?

I thankfully fully vetted everyone who applied and picked the right people, even if they didn't purchase.
Learned - don't do everything by yourself. What took me 4 months could've took 2 with some help and save some money.
Always stick to what the lease says. Don't be a jerk but if they are late ask them about it and see their reasoning. Send late fee if needed.