4,150 Reasons That I Love Lease Options

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?

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.