If you don't have a large chunk of cash to make a down payment,especially if this is your first investment property, a least option can help you get into the game very quickly. The way a lease option works is that you negotiate with owner for the right to rent the property with the option to buy it at a future date for a specified price.
If you choose not to purchase the property, for whatever reason, you're not obligated to do so. According to the terms of the lease, however; the owner will be obliged and required to sell you the property for the agreed upon price, should you decide to exercise that option and right. The beauty of the lease option is that it allows you to get it on a property very quickly; because you don't have to make a down payment and you'll only be responsible for whatever monthly lease amount you negotiate with the owner.
During the time frame that you lease the property, you can use the funds you do have to renovate the property and locate someone to purchase the property at a higher selling price after it's renovated. A word of caution here,however. When you negotiate with the current homeowner and sign the lease, it's imperative that you insure the lease contains a “Full Right of Assignment” clause. Without this clause you won't be able to do anything to the property, including locating a new buyer, without his or her approval.
Another few tips about the lease option. While you won't have to make a down payment, you will typically need to pay the existing homeowner an option fee. This is generally nowhere near as expensive as a down payment and is usually about a hundred bucks or less. This is a compensation fee of sorts for the homeowner agreeing to sit on the property, more or less, and sell it to you should you decide to buy it. In essence, you're paying the homeowner for time. The lease option must also contain the price you and the homeowner have agreed upon, should you decide to purchase the property. Finally, most lease option contracts contain an expiration date. This means that you will have up until the stated expiration date to either purchase the home or walk away.
Remember, you're not obligated to purchase the home within that time frame, but if you don't and the expiration date passes, the homeowner is no longer obligated to sell the property to you for the agreed upon price. When a lease option is carefully negotiated, it gives you the full legal right to make renovations on a fixer upper property, find a new buyer and sell the property; even though you were never on the title. This is a very good way to make several thousands dollars pure profit and the only money you will be out are the renovation costs, option fee, and whatever you paid in rent for the duration you leased the property.