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4,150 Reasons That I Love Lease Options

by Jason Hanson on August 7, 2008 · 7 comments

  

When I become President and it’s the United States of Jason, I will impose the death penalty on anyone that stops at a yield sign…for heavens’ sake, if you were supposed to stop, there would be a stop sign and not a yield sign. Do you think they put that extra strip of roadway there for the fun of it? So, now you have been warned that unless you want the electric chair, do not come to a complete stop at a yield sign.

Alright, alright, now to show you how to make money. As most people know, I am a FIRM believer in only utilizing investing methods that require very little cash and absolutely none of my own credit. And that the best deals are when you work directly with the homeowner (which is why I don’t do foreclosures). Well, a partner and I just picked up a lease option deal in Baltimore, MD and I want to give you the numbers to show you why this is a must learn technique.

First off, I got this property from a landlord who I had already done a deal with, which is why my favorite group to target is absentee landlords (they usually own multiple properties). Anyway, we signed a five year lease option with a monthly rent of $800 and a purchase price of $80,000 (this means that anytime within the within the five years we can buy the house at $80,000). We put zero money down (yes…..zero, nada,, zilch, zip). My lease option agreement reads that I never put money down and that I make the first rent payment 60 days from the date the paperwork is signed (60 days gives me time to advertise the property and find a tenant/buyer…I always do 60 days).

After we took care of the paperwork with the seller, it was time to find a tenant/buyer. The best ways to find a tenant/buyer are classified ads (Rent to own, bad credit OK, 3br/2ba, only $1,399/mo, Free $300 rent credits, call Lisa 555-555-5555), placing ads on rental property websites and placing signs everywhere. The advertising will generate a ton of calls. Finding a good tenant is just like finding a motivated seller…you will go through about 99 bad leads until you find one quality lead.

Once you get your leads you can either set up appointments or use a lock box. For this property we set appointments on the weekends (you will want to set appointments, do not hold open houses or nobody will show). We ended up getting a couple who gave us $5,200 to move in. This breaks down as $4,150 in option money, $200 security deposit and $850 for the first months rent. Also, they have an option to purchase the house at $110,000.

We spent about $150 on marketing, put zero money down and got $4,150 in non-refundable option money. Now, I am no math genius but I think that’s a profit of $4,000…then of course don’t forget about the big payday when the property sells.

Speaking of big paydays, over the weekend I had a lease option tenant call me and tell me their loan was approved and they were exercising their option, so that’s another $30,000 payday…how can you not love this business?

Here is the million dollar lesson I hope you learned: You need to eliminate the word BANK from your vocabulary. You need to learn wholesaling, lease options and subject-to if you want to purchase millions of dollars worth of property every year. The only people who should be going to banks are your tenants when they buy the house and the people you are wholesaling properties to. I can’t emphasize this enough: You need to think like a “player” and not a “wannabe.” Players become millionaires using creative financing methods and wannabes wait for bank loans to be approved or they wait until they have 20% saved up to buy a property.

So, which one are you? A player or a wannabe?

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{ 7 comments… read them below or add one }

Brock August 7, 2008 at 8:36 am

Jason, I found this post to be very helpful, but if you’re looking for a topic of another post I would be very interested in how you screen potential tenants. 99 bad leads is a lot to go through unless you have a quick & clean method of sorting the wheat from the chaff.

Thanks,
Brock

Reply

Joshua Dorkin August 7, 2008 at 8:54 am

Great post, Jason! I’d love if you continued to explore the Lease Option strategies in your posts. I think the readers of the blog can really get a lot out of these types of posts!

Nicely done.

Reply

Pierre Clark August 7, 2008 at 12:54 pm

Great post for me to see at this point as I am building a development/property investment company and there seem to be many candidates for lease option deals in my city. Thanks for the great insights.

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Jim W August 7, 2008 at 7:27 pm

I think this is the future. Real estate always change form old hands to new hands. In five years if the value is less, you can still renegotiate. Say it is only worth 60k you can say ether sell it to me for 60k or I will buy the house across the street for 60k

Reply

Darin September 28, 2008 at 8:49 pm

Jason…

Great post! We’re focusing on Lease Options and Cooperative Assignments in our market down in Hilton Head Island, South Carolina. Getting a few deals under my belt will give me some money to pay off all my bad debt which will lessen my expenses hence increasing monthly cash flow. Result = early retirement!

It’s true…How many Lease Option(Rent-to-Own) deals do you need to do PER YEAR to live comfortably? Two, Three, Four? And, done correctly, it’s all with very low risk and usually with none of your money or credit!

But the best thing…you’re helping sellers and buyers who thought they had no other “option” other than just throwing it on the MLS and praying or throwing away rent for years trying to save up for a loan.

Keep the success stories on L/O’s coming!

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Charles M. Boehm-Hill May 31, 2012 at 10:05 pm

Jason,

Thank you for these well written, informative, to-the point articles. We are beginning to provide cooperative lease options in our selected cities. We have been reading and following Wendy Patton, et. al. for useful information and courses to take. Your is high on the list. You make this career seem fairly easy, fun and profitable…as long as we remain consistently persistent!

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Adam Zachmy June 25, 2014 at 11:30 pm

Hi Jason

Great article. This strategy wouldn’t be suitable for someone with a full time job I take it. What is your process of screening your 100 leads? Thanks

Reply

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