In today’s market, you will need to be a well rounded real estate investor if you ever want to make real money in real estate. The problem is, most investors (new and veteran) spend too much time focusing on one or 2 exit strategies, when in reality you need to focus on the 3 main strategies that will bring income. This way, if one strategy is not producing, you will still make money with the others.
So I will reveal 1 of the many strategies that I use in order to make money in THIS market (and ANY market for that matter). We’re going to talk about lease option investing.
So what exactly is a “Lease Option”?
Well, Lease Option is the abbreviated form of the appropriate term “Lease with the Option to Purchase“. In a Lease Option situation a buyer will enter into an agreement with a seller as a tenant (lessee) and the owner in this case would be the lessor.
The Lessee can take an option to purchase the property at a later date while leasing the property during the current time. The lessee is NOT obligated to purchase the property when the option term is up, but the lessor cannot sell or rent the property to anyone else other than the lessee while under the lease option agreement.
In order to have a valid option, the buyer must provide something of value in order to make the option valid. And in the option agreement the 2 parties MUST agree on the price and terms of when the option needs to be exercised.
So what that means is the buyer and seller should either come up with a purchase price before signing the agreement, or add to the agreement that the purchase price will be whatever the appraised value for the property is at the time the option is exercised.
Here are Some Basic Steps on How a Lease Option Works:
- A motivated seller calls you and he/she is willing to do a lease option on his/her property.
- You offer an option and agree on terms for a purchase price.
- You take out an option for 24 months (2 years)
- The seller’s mortgage amount is $500/mo and he is willing to lease the property for $700.
- The properties in the area are renting for $900 so you decide that you would want to take advantage of the lease option because you can make some monthly income.
- You also purchase the option below market value so you have a winning deal.
Let me give you an example! Let’s say you get a call from a motivated seller who is willing to do a lease option on his/her property. The properties in the area are valued at around $100K in the current market and market rents are going for $900.
You agree to purchase the property for $80K and during the term of the lease you will pay the seller $700 monthly, but for the first 60 days you will not have a payment. The seller agrees.
The seller is just eager to get the property taken off of his/her hands. You also negotiate that you will give the seller a $100 deposit to make the agreement valid. The seller agrees.
Those are the FIRST steps in doing a lease option deal and as you can see it is pretty simple to do.
In the next article what I want to show you is how to actually take a lease option deal and wholesale it. This is just ONE of the exit strategies that you can implement when it comes to lease option investing. And I want to show you how it works.
If you can wholesale these deals you will be able to pick up properties with little or nothing out of pocket and with no risk what so ever. And on top of that you will make boatloads of cash if you do it right.