Thoughts On Purchasing Filled Lease Options

Got back into town a couple days ago from a holiday trip and now I'm trying to catch up on everything...

I get emails occasionally from people selling properties that have tenants in them with leases with an option to purchase, usually 1 or 2 years out. Many times, the purchase price is fixed, but I have seen some that say the purchase price is the appraised value in 1 or 2 years, or whenever the option runs out. I was just thinking this morning that those types of options might be dangerous for the investor buying it today. Prices are at near-historic highs today and there seems to be a general consensus that the real estate market will crash soon. If it does, the investor could end up in a position of being forced to sell the house for less than he paid for it. If the market collapses, or even suffers a small decline, the appraised value in the future could be less than what it was bought for.

Just something to keep in mind. And, of course, if you don't believe the market will decline, this shouldn't give you cause for concern.

What Is It With Contractors These Days?

It seems no one wants any work! I guess this is what happens when you live in an area that has a mad housing market.

I'm getting some work done on my house - we needed some drip irrigation lines installed in the backyard, my fountain is leaking and needs to be fixed, and I'm having a bunch of electrical work done inside the house.

I had to call 5 companies to get someone to install the drip lines. Three companies never returned my call and one said they only do work within a 10 mile radius from their office. The fifth guy returned my call after about 3 days. He missed his first appointment and, about a week later, came out for an estimate. The work was finally done yesterday.

Similar problems with the fountain - no one wanted to work on it. I finally got a referral from a local real estate investor. This guy came out to look at it, again after missing his first appointment (but, to be fair, he missed it because he broke his ankle). He gave me some things to try, which I did, and I verified it was the fountain that was leaking and not something else. I called him back and again, he didn't return my phone call. A couple days later, I got hold of him and he said he didn't call back because his dad had to go in the hospital for heart surgery. So that delay is understandable too. But he was supposed to have fixed the fountain on Monday or Tuesday and it's still not done.

The electrician I am using has great referrals and is doing work for some family members. However, it took him three weeks to come out and do the first half of the job. For the second half, he needed to order some parts. He was supposed to be back Monday to finish and he never showed up. He's a great electrician and works fast, but he is just really busy. It's frustrating.

So I've been spending the last 1.5 months trying to get these little tasks done. No one follows up on their own and I have to babysit each person. Argh!

Ok, just had to vent. I'm going out of town next week for the Thanksgiving holiday, so no updates here for a while.

They Dropped The Price A Bit

I am keeping an eye on the property I talked about earlier in the week. Sure enough, today they dropped the price by about $3,500. Still too slim of a deal for me, but I'll keep watching it...

Visit To A Property

I found a potential property today at buyazforeclosures.com and went over to check it out at lunch. This property caught my eye because they were selling it for about $30,000 under FMV.

This property would be a good rental, but I don't think it would work for a flip. As is standard with foreclosures, there was a fair amount of trash and holes in the walls present. The kitchen needs new appliances and new cabinets. In fact, all the cabinets in the house need to be replaced. The bathrooms weren't too bad, but they would at least need new sinks and vanities. The furnace was missing. Of course, carpet and paint would be needed. The backyard also had a fair amount of trash that would need to be hauled away - a couch, some dressers, tires, etc. The house was also built in the early 1970s, so there could be aluminum wiring issues. All in all, I think there are enough things that need to be done that I would need to hire a contractor to coordinate and supervise the repairs instead of just using a handyman.

It's too bad really. I like the neighborhood. It's an older neighborhood, but the houses and yards are well kept. The house across the street is being remodeled and will have a really classy front facade. I figure you probably could still make about $5,000 on a flip, but that's not enough profit to take on such a large project, especially when you take into account possible cost overruns and any repairs my cursory examination might have missed, not to mention the cooling of the local real estate market. But, as I said before, I think it would make a good rental.

Getting Back In The Swing Of Things

I'm starting to get back into routine of looking for new properties. Two days ago, I went through my lists of contacts and emailed people who responded to my post on birddogs. One person responded with a property and I checked it out yesterday at lunch. I don't think this one will work. The guy thinks it will sell for $210,000 to $215,000 when fixed up, but I don't see it. The neighborhood isn't that great and the comps I am pulling show prices in the $170,000 range - which is his asking price. The guy is a real estate agent and the property has a sold sign on it from another agency, so I'm thinking this guy is a wholesaler. If I was going to rent the place, it might be worth it, but for a flip, that price isn't low enough.

I'm curious to see where this guy got his comp figures from. I found two recent sales close to that price range, but they are in better neighborhoods (although just a couple blocks away). Coincidently, if you take 80% of the midpoint of his comp range ($212,500), you get his exact selling price - $170,000. Since I listed 80% of FMV as one of my buying criteria in my email, it makes me wonder if he just worked backwards from his selling price to tell me a comp range that would meet my requirements.