Is This A Deal? Possible Lease Option

[Eric Metz]

Good day BP community. I am venturing into a little bit of uncharted territory with a lead that came across my desk today and wanted to ask for the advice and wisdom of others. I've done a few wholesale deals, and some slightly creative financing deals. I have a lead that would only work as a Lease Option or Subject To but I am not sure of my analysis and projections. I am reaching out for your take on things and to help me with making a decision on the deal. I am going to copy and paste the e-mail I sent to my RIA group (which is generally not very active.)

Is it a deal? I will share the details and my thoughts on what approach I might take.

Lead Information:
***I do not have this lead under contract. I will share the address directly with members who are interested when they contact me.***

Street: 2 Minutes North of Congo Exit off I-30 (Extremely Easy Access To Interstate)
City: Benton
Zip: 72019

3 Bed / 2 Bath / 2 Car Garage
1,440 sqft
Built in 2005

MY ARV Estimate: $104,000 - $110,000
Zillow Zestimate: $115,000

Condition: "Great" - (Seller states move in ready, but it's still sight unseen at the moment.)

Occupancy: House occupied by owner family member who is moving at the end of the month. Seller states they have full trust in the occupant and know they took care of the house. (Subjective)

Mortgage:
Current Balance: $94,500
Interest Rate: %4.5
Monthly PITI: $754

Area Rent Rates per Rentometer:
Median Rent: $1000
Average Rent: $1064

Seller Situation:

Seller moved 2 years ago and was unable to sell the house via Realtor. Family member rented house from them for the cost of the mortgage. They don't have the finances to cover mortgage since they have another one on another house.

Asking Price: From the start he just wanted mortgage price.

Seller agrees there isn't a lot of spread in the deal. I opened the topic of renting the house from him and taking care of any repairs. After some discussion seller stated he didn't care as long as the mortgage was paid.

A Red Flag: I pulled up the parcel record and noticed some irregularities in the sales history. Basically it looks like the seller received it from a mortgage company at 50% value what the mortgage company purchased it at. I asked for a screenshot of his mortgage info in order to consider it further. I mainly want to verify he isn't lying about the payoff amount. **** Disregard this.. I received his full mortgage info within moments of asking. It looks in order and verifies what he said.

Some Numbers:
Instant Equity: 10k - 15k
Rent Spread: $246

My Thoughts: If things are taken at face value without much more verification then my breakdown is like this.

Enter the deal: Lease Option For the Term of the Mortgage that covers full mortgage amount.

Upfront Costs:
First Month Holding Costs: $754
Marketing Costs: Varies on your access to Rent-To-Own/Lease Option Buyers
Repairs: $2000 (Sight Unseen, unknown, but says the older couple living there took great care.)
Tenant Screening: Unsure


Exit Strategies:
Unless you just have a kickbutt Realtor that work this area and the house really needed no repairs/updating I don't see this being a quick flip. You would need to get top end price to make it worth it.

This home would be perfect for a Rent-To-Own Buyer or Someone looking for a Lease Option. The prices for the area have been trending upwards for the last 3 years, the school districts have great ratings, and accessibility to the Interstate is prime.

Rent To Own: Sell @ 115k @ (Choose The Interest Rate and Term remember Dodd Frank Laws)
Possible Monthly Payment: $1100??? ( I sincerely don't know. I've read you can charge more than rent rates due to they will own the house in the future. Most things I am referencing are showing closer to $1150 - $1200 which seems too much)
Deposit: 11k (10% of Purchase Price)

Possible Profits:
Instant Equity of 15k from purchase.
11k from deposit - initial expenses
Backside equity of 5k.
Yearly revenue from rent spread of $354 month = $4150 a year.

Seem there is a good amount of money to be made here but for the right investor.

So... Is This A Deal?
I primarily focus on wholesaling BUT I know that deals like this are structured daily. This is why I am asking you all for help. As a wholesaler I could simply get a contract for the best terms I can possibly get and try to assign it to another investor for a reasonable assignment fee. Let's assume an assignment fee of 3k-5k. That still gets the investor into the deal with some profit upfront (assuming they can get at least the 10k for a deposit) and the monthly spread + instant equity. I would also be interested in doing a joint venture with another investor if they felt this was a good deal. It would allow me the opportunity to learn more about this type of structure and I am not blind to the drastic increase in what you can profit from this type of deal over the long haul vs the lower instant payday.

My questions to you.

1.) How accurate do you feel my assessment of this deal is?

2.) Do you agree with the exit strategy or do you feel there is a better option?

3.) Did I miss anything that you feel is significant in my ability to analyze this deal?

4.) Interested? If yes, would you consider a JV?

5.) If this is the type of deal that you generally do but you aren't interested, why?


Let me say to those that take the time to read this and respond I really appreciate it. I am still very much learning and value the assistance I get from others.

Cheers,

Eric Metz