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Updated 9 months ago,
Rent to own advice
What are your thoughts on the deal structure below?
The homeowner currently owns a rental property in the bay area and the tenant’s rents is $2,200 a month which is way below market. Market rent is $4,300. The tenant and house have been a huge headache for the owner. Repairs, nonpayment, city violations, late rent, etc. I want to make a deal that would benefit both of us. Any advice would be appreciated. Does anyone have a template or contract I could use to write up the terms? Or a recommendation to a real estate attorney?
I am trying to do a lease to own with the homeowner. I would have the option to buy the home in 5 years for $1.3 million. I would pay an option fee of $50,000 up front. The house is probably worth $1.3 million today. I would lease the home for $4,000. $3,000 would be considered rent and $1,000 would go towards buying the house. I would then sublease the property to a new tenant for $4,300.
I would take care of all repairs and any tenant related issues. I would benefit because I would have a small cash flow of $300 and I would be paying down $1,000 per month towards the purchase price of $1.3 million. If I do not exercise the option to buy the property after 5 years the landlord will keep the option fee and all rent that has been paid. Another possible benefit is the property may increase in value over the next 5 years and I will have the option to buy at today’s value.
It's a bit of a risk for me because the property could decrease in value to a point where I wouldn’t want to exercise the option to buy. In that case, I would lose my original option fee, money put into repairs, and any work/time I put into the property or managing tenants.
The landlord would benefit greatly because they would get rid of their current headaches regarding repairs and tenants. There is probably $75,000 worth of deferred maintenance that needs to be done. They would also be happy to receive more rent each month and have someone potentially buy their house for their desired price of $1.3 million.