Unlike many strategies out there, my 7-Step Lease Option Refinance Strategy achieves what is my biggest investing priority: preserving my capital and minimizing my risks! There are lots of ways to use lease options as a refinance investment strategy for homeowners in need, but most of them do not sufficiently focus on mitigating risks.
But for starters, we are only going to work with existing homeowners who are generally established in their communities and have built up some equity in their homes. We do not use this strategy with clients who have no or little equity.
Why I use the Lease Option Refinance Strategy
As you know, the lease option strategy is used in a variety applications, from leasing cars to furniture. It is also used in “rent to own” or “lease to own” real estate scenarios. These situations arise typically when someone wants to buy a property—usually a young couple—and they either don't have a sufficient down payment, or else their credit is bad and they can’t secure a mortgage.
I’ve done a couple of rent to own purchase deals with new home buyers and although I would consider doing some again, they are much riskier than dealing with existing homeowners.
Why is that? Quite simply, the existing homeowner has more to lose if he doesn’t fulfill his lease option contract obligations than someone who puts little money down. Moreover, the 7-Step Lease Option Refinance Strategy counts on having at least 12 months of expenses held in reserve.
These funds come from the homeowner’s equity. A rent to own person simply doesn’t have that kind of cash and, therefore, is a higher risk.
Remember, we not only want to make money from day 1; we also want to make sure we don’t lose money. Ever! The best way to ensure that we don’t is to have a large reserve fund, solid agreements, and great investment deals.
There are other advantages to working with existing homeowners. Chances are they have families and are well-entrenched in their communities. That is, they may be involved in coaching kids’ sports or helping out at the local school. They have a stake in staying in their home and are willing to do whatever it takes in order to stay there.
Let’s face it: no one wants to have to pull their kids out of school, up-root the family and move to a rental. The 7-Step Lease Option Refinance Strategy offers a way for them to keep their homes while getting back on their financial feet.
The 7-Step Lease Option Refinance Strategy
The following steps make up the 7-Step Lease Option Refinance Strategy.
Step 1: Identify your investment funds… you will need between $50k – $100k to do this right. Relax, I will show you how you can access these funds if you don't have them.
Step 2: Select your team of experts… you will need to build your team with a mortgage broker, lawyer, accountant, banker, mentor, property manager, and others.
Step 3: Find a qualified property… you need to make rational, objective evaluations of both the property and the tenant.
Step 4: Purchase the property… there are several agreements and letters of direction you'll need to prepare to get the property under legal contract.
Step 5: Manage the property… during the refinance term, you will either need to manage the property yourself or have a solid property manager do it for you. Since I don't like dealing with tenant issues, I have a property manager on my team!
Step 6: Sell the property... at the end of the refinance term, you'll need to sell the property back to the tenant, and..
Step 7: Do it again! If you really want to generate a lot of wealth from real estate, the way to do it is with a low-risk, high return approach like this one and to reinvest your returns. In about 12 years or so, you will have generated well over $1,000,000 using this strategy.