Subject to and Lease option deal structure analysis and help

[Dave Slaughter]

I have an opportunity that I would like a second set of experienced eyes to look at with me.I am following up on past leads that I did not close.I have learned more since my first meeting with them and think I can solve their problem better.Before I contact them again I wanted to run a possible solution by this forum for guidance.

I first met them from my absentee marketing , they had a renter in place for $775/month but that renter has fell behind a few months and continuously late on payments.They claimed to be "too nice" to follow through with eviction and also cited living cross town is a pain for them. So their motivation was pretty high at the time.I walked the house and see that it needs approx. $15k in repairs and would have an ARV of $79k.My cash offer was in the mid $30k range. They politely declined that offer and we parted ways.

After looking into this further today, I think I can put together a sub-to and owner financing with the exit strategy of putting in a lease option tenant to cash out.Here is what I know and what I am thinking about putting together.Please advise.

Today's ARV:79,000

3BR 1Ba ~1000 sqft.

Currently getting $775/month with spotty paying tenant (late and has been behind)

Rentometer shows Average Rent $830

From land records research I estimated that the seller put 13,900 down and financed 55,600 for 30 yrs. when they bought the house in July 2004. Guessing at 6% their payment is approximately 333/mo.Using these numbers they have a balance of roughly $15,600 remaining on the mortgage. I didn’t see any indication of a refi, heloc or the like in the records.

My thinking is to offer subject to existing mortgage, (remaining 47 months of $333) and $40,000 seller carries for 4% amortized 30 years. Cash them out after 5 years ($273/mo.), which is close to their initial investment in 2004.Total Monthly expense $607

Place Lease with option tenant, $4500 option to purchase for $80,000 in 2-3 years, monthly lease $850

So if tenant exercises the option on month 36 this is what the numbers would look like:

36 months of existing mortgage = 11988, 11 months remain =3663

36 months of seller carry= 9828 , remaining balance =30172

Total remaining balance to seller= 33835

Selling price to option tenant= 80,000 – balance = $46,165

Cash flow arbitrage $850 - $607 = $243 X 36 months = $8424

Option fee $4500

Total gross profit = $59,089

What did I forget, and is this a possibility?Thank you all in advance.