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Hi!
Calling all lease-option pros!
I have a single-family house that is currently a short-term rental but it’s just not making the amount of monthly cashflow it needs to be worth the extra hassle.
Now, could I keep it as a regular rental?
Yes, but cash flow would be a few hundred bucks a month at best and that’s if nothing breaks.
This was a 1031 exchange as well. I sold a property in Chicago and exchanged the funds for this property in Fort Lauderdale.
My idea (feel free to poke holes in it) is to lease-option the property in April to someone who is willing to put down 10% for the Option.
The house is worth $650k, so 10% is $65k down.
It has a pool, 3 bedrooms, 2 baths, and is in great shape with recently remodeled baths and kitchen. It’s a nice house in a nice neighborhood.
I would give them at least 2 years to exercise the Option.
I know I’ll have to pay the capital gains taxes the year they exercise the Option (or could I do another 1031?)
The benefit to me of selling it on a lease-option today would be the upfront $65k cash and getting someone in there who will take care of the home because they are planning to own it.
It’s common to allocate a certain percentage of the rent towards the principle, right? What’s a good number?
I also heard it’s a good idea to make the purchase price at the time of exercising the Option contingent on appraisal. Yes or no?
Thanks in advance!
William,
You’ve asked a lot of good questions. No way I have time to write out detailed answers. You’re welcome to call me with your questions.
Here are some brief answers:
If your lease/option resident buys property you will pay capital gains and depreciation recapture. To avoid this, 1031 into a property that has much better cash flow.
Getting someone who will take care of the property is always the key, isn’t it. Just because they say they will doesn’t mean they will. Before renting to anyone, I first make a surprise visit on the prospective resident where they currently live. However their residence looks both inside and out is EXACTLY how your house will look one day after they move in. If they have roaches and high grass, you will have roaches and high grass.
Sometimes rent applies. Sometimes it doesn’t. It’s a negotiated thing.
You do no hace to make purchase price contingent on appraisal. This is a negotiated thing.
You are a member of Cash Flow Depot. Key word search Lease Option. There’s a ton of material here to learn.
Take care,
Bill Cook
770-815-8727The time to make your money is before you buy, structuring your transaction and your price to your benefit now and for the future, will allow you to let time heal all wounds!
If you pay as much or more than the property is worth that can hurt!
The time to make your money is before you buy, in essence structure your transaction and the price as well as your terms, to benefit yourself and of course attempting to give the seller what they need.
Over the years that I bought properties I have actually told people gee I like your house I think I can do a deal with you but your price is just a little high is that the best you can do? And I have spent as long as 4 and 1/2 to 5 hours, you put your foot in the door when you knock on the door you go in and if you can put together a deal that makes sense for both of you, then and only then proceed. To your success usually spending time with sellers door knocking and making sure that they have your name and number if they would come disappointed or their price comes lower can be to your benefit.
The time to make your money is before you buy
Dan Butler
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