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Hey all, complete newb with creative financing here but wanted to ask the group about a scenario i’ve got.
I’ve got a client with 2 Student rentals that he is really thinking about selling. He doesn’t “need” to sell, but he is getting closer to retirement and realizes that he doesn’t want to fix toilets and all the hoopla that come with owning rentals. I’ve talked with him for several hours now and he is entirely open to other options. He has talked about potentially doing a 1031, maybe buying a vacation rental, or potentially storage units in the area that he’d like to retire. I really think he would be totally open to a deal where he could have some cash flow every month but not much work, and over time get more money for the property than what its actually worth (by acting as the bank etc). As such, I am thinking about proposing the idea of selller financing the whole property. By doing this i could likely get an even better monthly payment than if i had to finance through my bank.
However, he owes about $100k on the properties (15 year mortgages and has about 5 years left on the mortage). They are worth about $350k combined in the current market. I really don’t want to do subject do for this size of debt at this point.
Instead of doing subject to, I was thinking about doing an option where i could purchase the property after 3 years but no more than 6 years (to allow the mortgage to get paid down more), with terms of seller financing already dictated. Maybe a lease option could work too, if i made the lease amount the same as his mortgage payment, and the option what i stated earlier?
Entirely open to other recommendations!
TIA!
Don,
That’s a good idea. What would be the major difference in this scenario for a master lease vs a lease? There really isn’t any room for improvements to the property – I would only see regular maintenance expenses. Also why would i not do an option in addition to the lease so that i could purchase if I wanted?
Thanks!
Lukas,
If it was me I would do a performance master lease. Say you (tenant) pass through to the owner (landlord) a certain percent of the rent collected from the occupant tenant. The one I do I keep 10%. You could ask for an option now, but if it was me I would wait a bit and see how it goes with all parties.
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