Lease Option - Is this a Good Deal?

[Kellum Lewis]

This is a follow-up to another post I made earlier. I've worked out some numbers and would love to get others' feedback.

A distressed seller contacted me. Her SFR is currently worth $389K "as is." (I've verified this number with good comps.) She acquired it from her parents who recently died. This was her childhood home and she wants to keep it. However, it has a reverse mortgage on it of $280K and the lender is calling for the balance to be paid. She doesn't have the cash.

I'm proposing to buy it from her for $290K (to cover any additional amount added before pay off) and give her a lease option to buy it back in 2 years at $350K. Her monthly payments would be $1700 in rent ($1800 is average for her area for a 3/2 SFR) plus $511 - the amount she'd have to save for 24 months to have a downpayment of 3.5% (for an HFA loan, for instance) on a $350K loan.

My hope is to sell this package to a buy-and-hold investor for $300K, which gives me a $10K assignment fee. The buy-and-hold investor then gets $2111/month minus expenses (tenant pays for all utilities and maintenance), taxes and loan costs (if they borrowed the money) plus the $350 sell price (minus the accrued down payment $12,250 -- which they already have from the monthly payment).

Here are the numbers for the buy-and-hold investor:

$2111/month x 24 months = $50,664

Minus taxes ($864/yr) = $48,936

Plus sell price = $398,936

Minus accrued down payment = $386,686

$386,686 minus initial investment of $300,000 = $86,686 profit

Cash on Cash return = 28.9%

If the tenant does not exercise her right at the end of 2 years, the buyer could sell the property. Prices in this area have gone up 102% in the last 90 days so, presumably, appreciation will increase over the course of the lease. I'd love to hear your feedback on this. Thanks in advance!

Kellum