Using A “Handyman Special” Option
Have you ever experienced buyer’s remorse after purchasing a property that needed too much work? If you haven’t, count yourself blessed.
One time we bought a home that needed a ton of work. When we started pursuing the deal, I lived 15 minutes away; I was full of vigor and ready to knock out so major rehab.
A year later, when we finally made it to the closing table, Ashley was seven months pregnant with our firstborn. I was neck deep in a rehab we were planning to move into and I was running out of time to get my bride into her new nest before our first chicklette got here. Needless to say, all that vigor I had when we made our offer had been spent.
Taking inventory of the situation, I realized I now lived an hour away from this property. I had very little time to devote to it, and every day it sat vacant was costing us money. We had to do something quickly.
In its condition, we couldn’t just sell it and make a profit. Besides, we wanted the long-term cash flow that could be made by renting it or selling it with owner finance.
To begin turning around a stagnant situation, we offered the property as a “handyman special” lease option.
This turned out great. We found a tenant buyer who loved the area and rented the house to them for $400 a month. We sold them a one-year option to buy the house for a good price in return for a non-refundable option consideration of $4,000. We worded the option to say that as long as they fixed the house up and made on-time payments for the entire year, we were willing to give them owner financing on the home.
Then disaster struck. We got the $4,000, which was great, but instead of doing all the work on the house, the tenants just moved in.
Having someone occupy one our properties when it was in that sort of condition violated my moral and business principles. However, we hadn’t spelled out in the paper work that the tenant couldn’t move into the house until repairs were made. Reluctantly, we decided to let it ride.
To make a long story short, 17 months and 10 pay-or-quits later, we got them out. I’d learned my lesson and decided to use the flexibility found in options to control what happened next. (Actual picture of the home)
Recall that an option is a contract that gives someone the right, but not the obligation, to buy or sell something for an agreed-upon price within an agreed-upon time-frame for an agreed upon consideration.
We offered the property again as a handyman special lease option. This time, we took no cash. Instead, we used the material cost associated with fixing the house up as consideration for the option.
We gave the new tenant buyers a credit towards the purchase price equal to the amount of their material costs for the necessary repairs. We also worded the option so they couldn’t move into the house until they had completed fixing it up. If they did, it voided the option.
Basically, we got free labor, and they got free materials. And since our tenant buyers had put time and effort into the property, we got tenants with a sense of pride and ownership living in our house. They fixed the house before they moved in and paid on time for entire year. This made us delighted to carry back financing on the home. (Actual picture of the home. They did such a good job.)
It was a win-win strategy.
I learned how to use the power of options to improve our real estate investing business by going to courses like the one Bill Cook and Pete Fortunato will be teaching in Atlanta Sept. 17-18. To sign up, call Kim Cook at 770-815-8728.
Joe and Ashley English invest in real estate in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.