Live-and-Flip into a cash cow lease option.

[Trevor Bragg]

Investment Info:

Single-family residence buy & hold investment in Glendale.

Purchase price: $255,000
Cash invested: $10,000

This is going to be a mix of a live-and-flip and a buy and hold investment. My wife and I got in this place for a total of 4k out of pocket, and we are fixing it up for the next year or so and then turning it into a lease option property to get the most ROI. We are expecting to be able to cashflow $500 from the lease option while still receiving the option fee. The worst that can happen is that the tenant accepts the option to buy and then we will make 30-50k profit.

What made you interested in investing in this type of deal?

My dad invested in rental properties his whole life, and it is now his retirement income. He made a couple incredible deals during the market crash in 08-09, and now he is sitting on 5 paid off homes. I am planning on upping the cashflow I get from my long term deals by turning them into Lease Options.

How did you find this deal and how did you negotiate it?

We got list price for a home that was listed according to the market value which is extremely rare in Arizona right now. We were told our good credit score, and some of the extra things inside the offer selected us over the 13 other offers input. This was not a fancy deal where we door knocked and found a place for a ridiculous price. Since it is a place we were moving into, we needed something quicker than the time and effort a great deal would take. We are still extremely happy with our deal.

How did you finance this deal?

We financed with a conventional loan and 3% down. Since I am a licensed agent, we ended up moving in with less than 4k out of pocket after all closing fees.

How did you add value to the deal?

Our sweat equity is currently adding value to the deal. We have opened up the kitchen floor plan, refurbished all the cabinets, and will redo the backyard. We also plan on putting some makeup where we can such as repainting the outside or repainting some walls. The home also has a 70s vibe to it, so we are constantly doing little things to the home such as placing outlets in the correct spots. We also plan on DIYing the bathrooms to give them a huge makeover. We expect to add about 25k in value.

What was the outcome?

The outcome is not confirmed yet. The plan is to Lease Option the home once we are ready to move out. Rent in my area is between $1400-$1700 for homes equal in value, and we pay $1250 a month which will become $1150 a month once PMI is gone. With a Lease Option we presume to have it rented closer to $1800 which will profit us at least $500 a month

Lessons learned? Challenges?

The lessons learned have been the value of putting in a good offer. Since this was not a uniquely found property, we submitted an offer like anyone else. Our credit score, short inspection period, reason to buy, and responsiveness to the agent helped us find this property. The challenges have not been too heavy, but I presume that finding good Lease Option buyers may take some effort.