A rental SFR Turned out to be a performing Note

[Emma Chen]

Hello all,

As I posted earlier, i am touring rental properties in Las Vegas this weekend. Here is one interesting deal I'd like to share with everyone, hoping you could provide me some feedback and insights.

One SFR with 5 br/2ba, current 4-year lease is $1150/month. It's selling for $86k all in cash. It has great Cap rate and good unleveraged IRR if we buy and hold the property. After touring the outside of the house and the neighborhood, I emailed the seller the offer of asking price. I met with seller and he brought the selling agreement and current lease agreement. I found that what seller signed with current tenant is a lease to own agreement and seller is playing as lender to the tenant. The tenant already paid $30k down payment and is paying interest( interest rate 10.33%) and fees as "rent". The principle of $85k is due at the end of year 4. Current tenant could pay off the principle anytime soon and get the house. All the financial analysis doesnt apply to the current situation any more. So I am buying a performing note instead of a property, except I still have to pay for landlord stuff.

I am thinking of two options I might go with:

First, go back to seller and give a new offer, a discounted current price, saying 80% of the $85k.

Second, tell seller that i would take my offer back because the deal is not what I was informed of.

You insights will be highly appreciated.

Thank you!

Emma Chen