I don't specifically know "Happy Hands," but I am a real estate
investor and do lease-options. (Note: I'm not a lawyer or real estate
agent, for better or worse...)
What Happy Hands is proposing is fairly straightforward. In a typical
lease-option, the renter is charged an up-front fee and slightly above
market rent. The up-front fee typically is (should be) credited toward
the purchase price, or credited toward the down payment. It's not
clear from your question whether this is the case. (You refer to a
purchase price of $114,000, but in your clarification you say it's
$110,000; is that after the $3,000 credit?) They're not giving you
much rent credit, but, then, it really depends in part on what rents
are going for in your area. Pretty much, the amount above fair market
rent should be credited toward the purchase price, although this is
totally negotiable.
Happy Hands should be making its money in three areas: (1) Your
up-front deposit (though if you purchase, it should be credited to
your purchase price), (2) above market rent, and (3) the difference
between what they've agreed to pay the seller and what they'll sell it
to you for.
Let's assume Happy Hands has a purchase contract with the sellers for
80% of the house's fair market value. (It's not likely to be less than
70%, or else they'd flip it...not likely to be much above 90% or there
might not be enough profit in it for them.) That means they probably
have a contract for about $88,000. I don't know what fair market rents
are in your area, but probably around $950, and they've probably
negotiated a price with the seller below that. Maybe $850. (Just a
blind guess.) And if the owner's distressed, they may not have paid
anything, or very little, for the option. So they're expecting to make
$26,000 on the sale of the house, plus maybe $2,300 on the rent
spread. (Remember, $50 a month plus the $3,000 is credited to the
purchase.) So, maybe they expect to make about $28,000 on the deal.
Sounds like a lot, and in a way it is. But they found the house at a
below-market price and they're giving you a chance to buy it for only
slightly above market. (And that's not including appreciation.) It
really isn't a terrible deal for you.
However, there are some problems. First, a year really is a short
period of time. On the one hand, very few investors who do
lease-options help a buyer clean up his/her credit, and a year is a
pretty quick time frame in which to do so. (There are some decent
services out there that'll help, but there are also a lot of
rip-offs.) You really should try for a 2-year, or even a 3-year
option. It'll give you more time to get your bad credit in the past,
and it'll give you another year or two of rent credits. And try for
more than $50 a month.
Understand, too, that they'll make money even if you don't exercise
your option...maybe even more. Let's say you default after 8 months.
You lose your $3,000 option; Happy Hands will find someone else to put
up $3,000 (or more), maybe pay more in monthly rent, mark the purchase
price of the house up more. Not that they want you to default; just
understand that they won't mind if you do.
Addressing your primary question of whether you can go around Happy
Hands directly to the owner. No. Undoubtedly, Happy Hands has a
contract with the owner. And Happy Hands (if they're smart) will have
recorded a memorandum of option with your county recorder's office,
thus clouding the title. Even if the owner wanted to sell to you, the
clouded title would prevent it.
An insider's tip: Happy Hands probably had the owner sign a single
lease-option contract, thus protecting their option interest with a
linked lease. What they'll likely present to you will be two separate
documents--a straight lease and a separate option (or, if they're
really clever, a contract for option). That helps protect them. (Long
story; trust me.) Ideally, you'd like the lease and option in one
document, too. You probably won't get it. What you should do, though,
is as soon as you sign the two documents (the lease and the option),
you too should record the option with the county or city.
So, in summary: Don't go around Happy Hands directly to the owner. If
the numbers you've presented are accurate (especially the fair market
value of the home) and you're getting a rent credit for the much of
the amount above fair market rent, it's not a bad deal...except for
the short length of time. And recognize the downside: If you don't
follow through, you lose the $3,000 and the rent credits.
Hope that helps. |
