Lease Option Options

[Jumpin]

Looking for ideas about how to make this work.
I have a client with a house worth approx $275k. Mortgage $215k with finance co. 12%.
Paying $459 per week. In arrears to the tune of $5k, but still capable of paying $459 pw. Finance co will call in the loan at end of the month.

Owners would prefer to keep the house and enter into a LO agreement or rent to buy.

I guess I would prefer a sandwich LO, but open to possibilities.
Is this altogether too skinny? to get a good result?

Opinions/ideas welcomed!

Tim

[krispedersen]

Lease Option

Hi Tim,

If the property is only worth $175k then I doubt that the actual amount lent against it has been $215k as that would mean that they have lent over 120% of the proeprty's worth. The difference is probably made up from penalties from missing mortgage payments and initial establishment fees when the facility was set up. Ideally the finance company aren't going to want to sell up because once they pay for the marketing and agents fees required in selling off the property they will be looking at a large loss. Get the clients to sign a privacy act giving you the right to talk to the finance company direct and see if they will sell it to you for the actual net amount oweing, not the amount after they have added all the costs on. The numbers may then give you some options. However you would be better to then look for a new tenant buyer and help the current owners move as the commerce commission takes a pretty hard look at any buy back arrangements and these people have already struggled making those payments

[Jumpin]

Dammit,, sorry that was a typo Kris Property valuation is $275k

[Dean@Massiveaction]

Hi Jumpin. Assuming you want to get involved simply buy the property at a mutually agreeable price and LO it back to them. However if they have to get 12% credit and they are over 10 weeks in arrears then they would apear to be A: bad credit and B: unreliable. So make sure you buy the property at a decent discount to provide you with some security.

[Jumpin]

Thanks Dean - Their track record appears to be less than exemplary, and that does worry me. Not sure what price they would accept at this point. If the finance co. repossessed what would the owners be left with? If they lost most of their current equity in a deal with me, in exchange for future growth, and ability to stay in the same house, is that a deal I should consider offering?
I suspect there is not enough cashflow in the deal to make it worth my while, but I am loathe to turn down the possibility to make a buck.

[toby]

What you are entering into is akin to a buy back scheme.
Take it from me either A) Buy it and rent it out or B) Buy it and flip it.
In your scenario, if everything goes very well and your client buys the house you are both happy, if everything goes not so well you're up the creek.

It should be a case of "which way will I win" not a case of if it goes right I'll win, if it goes wrong I loose.

[Jumpin]

Thanks Toby,
Clear thinking wins the day. Buy and flip is probably the best scenario.
Cheers
Tim