My Third Real Estate Investing Deal, Another True

My third deal as a real estate investor involved almost no money out of pocket for me at all. The home was in good shape and had only been built about 14 months earlier. The home is in a neighborhood where several builders had unsold homes on the street making it very difficult to sell a used home. The seller had an unusual motivation for wanting to be rid of the house: he wanted to forget an ex-girlfriend as he had bought the house to get married and for them to live there. The seller contacted me through an online lead site and looking over the deal I knew it was in an area that isn?t very good for retailing homes right now due to over building in the area. So what I did was offer to lease option the property from him. Like many sellers, the idea of a lease option doesn?t sound that enticing. Most sellers need all cash and have no equity. Well my seller had a little equity, didn?t need any walking money, and knew he couldn?t sell the home otherwise and had been trying for a few months with no luck.

After about a month the seller contacted me again about doing the deal. So we met at his house and signed a purchase and sales agreement, a memorandum of option, an option agreement for 72 months, a lease agreement with right to sublet and a seller?s disclosure. We agreed to a $125k purchase price and a $1038 rental payment. Other similar homes in the neighborhood were listed at $145k and this seemed like a reasonable deal to me. I agreed to start paying him rent as soon as I found a suitable tenant/buyer.

I paid to run an ad in the local paper which was my only expense. I had several interested people and took applications from a couple of prospects and selected the best applicant. We received a $3500 non refundable option fee towards the future purchase of the home at a price of $149k and a rent agreement for $1250 per month with $100 credit towards purchase for every on time payment with a 2 year agreement. With my tenant buyer we signed a purchase and sales agreement, a lease agreement, an option agreement, pet disclosure, and a couple of other papers. This is a pretty good deal as I have a decent tenant who can probably qualify for a mortgage within the 24 month time span we agreed upon giving me about a 50% chance they will buy at the end of the option period. I received a non refundable $3500 check up front against my back end profits which isn?t taxable until the option is exercised, as well as a $212 monthly rent profit. I expect to make close to $30k profit on this deal once my tenant buyer refinances and cashes me out.

What I did wrong on this deal was agree to pay the rent directly to the seller instead of having the checks made payable to the lender directly. On a positive note the deal is decently strong and I have good cash flow and if my tenant doesn?t buy I can easily put another tenant buyer in this property and collect another option fee as this is a desirable area.

Posted by Sandra Wortham on December 13, 2008 at 12:00 AM

About Sandra Wortham
Sandra Wortham is affliated with RE/MAX Wichita Falls, which is located in Wichita Falls, TX. For further assistance please use the contact information located on the right.

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Local Information for Wichita Falls, TX

Latitude: 33.897047 -- Longitude: -98.514881

ZIP Codes for Wichita Falls, Texas	76301 76302 76305 76306 76307 76308 76309 76310 76311
Area Code for Wichita Falls, Texas	940
Time zone for Wichita Falls, Texas	CST

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As of the census of 2000, there were 104,197 people, 37,970 households, and 24,984 families residing in the city. The population density was 569.1/km² (1,474.1/mi²). There were 41,916 housing units at an average density of 228.9/km² (593.0/mi²). The racial makeup of the city was 75.11% White, 12.40% African American, 0.86% Native American, 2.20% Asian, 0.10% Pacific Islander, 6.39% from other races, and 2.95% from two or more races. Hispanic or Latino of any race were 13.98% of the population. There were 37,970 households out of which 33.1% had children under the age of 18 living with them, 49.7% were married couples living together, 12.3% had a female householder with no husband present, and 34.2% were non-families. 28.7% of all households were made up of individuals and 10.7% had someone living alone who was 65 years of age or older. The average household size was 2.46 and the average family size was 3.04. -- Source: Wikipedia.com

Texas 2000 Census Population Profile Map

	Wichita Falls	Texas	United States
Population	104,197	20,851,820	281,421,906
Median age	31.9	32.3	35.3
Median age for Male	29.8	31.3	34
Median age for Female	34.6	33.4	36.5
Households	37,970	7,393,354	105,480,101
Household population	93,246	20,290,711	273,643,273
Average household size	2.46	2.74	2.59
Families	25,003	5,247,794	71,787,347
Average family size	3.04	3.28	3.14
Housing units	41,916	8,157,575	115,904,641
Occupied units	37,970	7,393,354	105,480,101
Vacant units	3,946	764,221	10,424,540

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My Third Real Estate Investing Deal, Another True

Local Information for Wichita Falls, TX

Latitude: 33.897047 -- Longitude: -98.514881

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