Textbook "Subject To" Deal With Lease/Option Exit

[Jason B.]

Investment Info:

Single-family residence fix & flip investment.

Purchase price: $63,500
Cash invested: $4,000
Sale price: $84,000

We bought this property "subject to" the existing mortgage and took over the seller's mortgage payments. We did a cosmetic rehab (replaced some flooring, new paint, new toilet, added a back porch), found a lease/option tenant/buyer who paid $875/mth rent and paid a $3700 option fee. They exercised the option, got a conventional loan, and completed the purchase of the house. Total profit approx $18,000.

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

We love "subject to" deals and taking over payments from sellers. It allows us to buy properties with minimal cash. Combining this type of deal structure with a lease/option tenant/buyer allows us to get paid upfront (non-refundable option fee), paid monthly (difference between PITI payment and rent payment), and paid at closing when we sell.

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

This seller contacted us directly on our website. He was highly motivated to sell due to already moving and buying another house. Since the property needed some cosmetic upgrades, he was extremely happy to sell "as-is" and agreed to the creative deal structure to essentially walk away. He recognized the value of a professional real estate company handling the details and taking over the burden of the property.

How did you finance this deal?

We took over the seller's payments and paid approximately $4,000 out of pocket for the repairs.

How did you add value to the deal?

We painted the interior, added two rooms of laminate flooring, and added a back porch.

What was the outcome?

We found a lease/option tenant/buyer who leased the house and had an option to purchase within one year. They exercised the option and completed the purchase within 10 months.