Seller wants to sell, rent with option to buy back

[Silvica Rosca]

Hi everyone. I've been following the podcast and forums for a while now and have question. A seller contacted me recently. He wants to sell me his house, but rent from me with the option of buying it back in the future. This is my first time with this scenario. How should I go about comping the property and determining an asking price? The property is in a high value area in Southern California. 

[Ellis San Jose]

Make sure you get legal advice on this transaction, it gets very treacherous when you are dealing with a former owner who will remain and occupy the same dwelling. It possibly could be construed as a "loan" not a sale and leaseback with an option.  Especially dangerous if the seller is currently in default/foreclosure.  Okay, now that you have been warned.

Determining strike price for the option is to project out your desired return for your capital, factor in your risks and responsibilities during the Option period.