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Lease Options as a Tool to Rock Out Your Rental Properties

by Ali Boone on February 9, 2013 · 44 comments

  
Lease Options

Money. We buy rental properties because we want money, right? I do at least. I don’t know what you buy them for.

If I want money, what has to not happen in a rental property? Vacancy and repairs. Vacancy is avoided if you happen to get that lifelong tenant (of which I’ve yet to find). Repairs are unavoidable no matter what. It’s a house, it wears. So maybe these two things aren’t avoidable, but how can you keep their expenses as low as possible? There are probably several ways, but I’ve learned a new one recently that I think is worth sharing. Lease options. Before I elaborate on those though, I need to reemphasize this vacancy and repairs issue.

I have to tell you that before I owned rental properties and started experiencing vacancy and repairs first hand, I truly did not realize how costly both of these can be. You’ve heard my story about the property with back-to-back evictions and the consequent turnover costs. Talk about being in the hole for income! Let’s see, six months of no rent at $975/month, I’ll round that to $1,000, so $6,000 in lost rents. The turnover was $2,400 in repairs. That has me at $8,400. I don’t remember the eviction costs, but I’ll go with $600 to make the numbers even. $9,000! Are you absolutely kidding me? $9,000 lost because of a single vacancy. This is a more dramatic case since it was an eviction, but it’s also very realistic too.

I only give that example so you know the reality of how costly vacancy and repairs can be. I know a Detroit investor who had a property that the tenants stopped paying rent on and it took seven months for them to finally be evicted by the courts. Seven months of no rent payments, and the tenants racked up $7,000 in damages during the time they were there. So probably $14,000 in expenses to the owner in only seven months?

Point is- keeping vacancies and repairs down is your ticket to good income on an investment property. How can you do that? I mentioned Lease Options as one method. I love them. Here’s how it works:

Get a Tenant in Under a Lease Option

  1. Advertise “Rent to Own. This tells a potential tenant that by renting your property, they will have an opportunity to purchase it, with some of their rent money going towards that purchase (only if they actually purchase).
  2. Multi-year lease with the option to buy. The standard for these is 3-year leases. The “option price” is decided upfront and put in the contract, which means should the tenant decide to exercise the option to buy, they have agreed to buy the property for a set price.
  3. Payment of an “option consideration” in lieu of a security deposit. The tenant puts down a non-refundable amount of money that is essentially a purchase for the right to buy the property later. The amount can vary, but is usually around the same as what a normal security deposit would have been.
  4. Exercising the option. At the end of the lease period, the tenant now decides if he wants to go ahead and buy the property. This decision isn’t just about whether the tenants want to buy the house or not, it may likely be more based on whether they qualify to buy or have the money to buy at that time. If they do buy, you sell the house. If they don’t buy, they have the option to renew the Lease Option with the same terms and option to buy again. Or they can continue to rent the property under a normal 1-year lease with no option. Or they can move. Their choice.

Why bother with all of this? Because having tenants in under a Lease Option agreement has some serious benefits!

Benefits of Having Tenants Under Lease Options

  • Decreased Vacancy Expenses. A tenant can technically walk out of a 3-year lease as easy as he can a 1-year, but at least the 3-year lease is in place and the tenant plans to own the property later so why would he want to leave anyway?
  • Decreased Repairs Expenses. The tenant assumes he is going to own this house eventually. Why would he tear it up?
  • Non-Refundable Option Consideration. This is free money for you! You don’t have to ever give it back to the tenant. It says so in the contract. Bonus.
  • Potential for a Nice Profit on the Sale. Typically the Option Price is about 40% higher than what you bought it for. So if you sell the house in three years, with a 40% profit, on top of the monthly cash flow you received every month for those three years, uhhhh….hello profit.
  • Higher Quality Tenants. Again, not a guarantee, but most often if you are dealing with someone who truly wants to purchase a house and for whatever reason just can’t right now, chances are you are dealing with someone a bit higher on the humanity scale than your average tenant. Not to say all normal tenants are horrible or that all lease option tenants are fantastic, but the odds are in your favor for this one. Having a high-quality person as a tenant can change your life for the better.

None of these benefits are guaranteed except for the Option Consideration payment. However, you are setting yourself up for less risk when it comes to tenant quality, vacancy, and repairs.

What You Need to Be Aware Of

There is a reality that you need to know about ahead of time. That reality is that, on average, 95% of tenants don’t exercise the option to buy at the end of their term. 95% may not be the exact number, but it is in the markets I’m familiar with and represents the bigger fact which is that few tenants end up buying the house.

Then why do it at all? For the reasons I mention above, that’s why. If the tenant doesn’t buy the house, the only of those benefit  I mentioned that you wouldn’t get is the 40% profit from a sale. Who cares! Less vacancy, less repairs expenses, monthly cash flow, you still own the property so you will continue to collect cash flow, and you’ve had significantly less headaches the whole time. Well worth it to me! I hate headaches.

If you know the tenants will doubtfully end up buying, is it ethical to get them in under a Lease Option? Absolutely! They truly do have the right to buy. If they don’t, how is that your fault or problem? It’s not.

The Downside

There is only one. You run the small risk that the tenant may buy your fantastic rental property. If it is a rockstar property, that could actually be a bummer for you. I do know a turnkey provider who does lease option properties and he actually will replace your property with one of equal value should your tenant end up buying. He can offer that because he knows so few tenants will buy, but he will for real replace the property. Outside of him though, you may actually be out your property. Oh well. At least you made bank on it!

Any other downsides you can think of to having tenants under Lease Options? Any other perks I didn’t hit?

Photo:Patrick_Down

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{ 44 comments… read them below or add one }

Karen Rittenhouse February 9, 2013 at 10:00 am

Great article, Ali. We have sold through lease option for years.

A couple of cautions: do not overcharge on the lease option consideration. I’ve seen investors get large amounts down and refuse to return it when the tenant moved without exercising their option. In court, the investor defends that they can keep this money because of the contract wording. Judges are not impressed. You do not want to go before a judge and try to convince him/her why you are entitled to keep a large deposit. Investors will likely be required by the courts to return this money. Keep the deposit realistic. We ask for three percent.

Here in North Carolina, if the lease option tenant stops paying, we cannot go through a normal eviction process. Magistrates in our court system no longer have jurisdiction over these types of transactions. These “evictions” are kicked up to a higher court. There are attorneys involved. Because of the lease option consideration, North Carolina (check your state laws – we are not the only ones) deems that the tenant has an equitable interest in the property. It is not quite the same as going through foreclosure, but it is not as easy to get someone out as a typical eviction. Again, the courts often see investors as trying to take advantage of an unsuspecting tenant, no matter what they signed.

We are very careful who we put into a lease-to-own. They must be able to afford to purchase the property and be someone we feel will be able to eventually get a loan. As far as putting any tenant into a lease option, nope, we don’t.

Used to be easier; used to be more common; more legislation has made it less attractive.

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Jack February 11, 2013 at 7:11 am

Wow, what a double standard. You are not entitled to a “large” option consideration because the tenant is just a tenant, but if you try to evict said tenant, suddenly they gain status as a buyer with equitable interest. Heads they win, tails you lose. Thankfully, my state (KY) has not gone that direction, yet.

Cheers~Jack

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Ali February 11, 2013 at 3:53 pm

Haha Jack, I love it- heads they win, tails you lose. I may steal that one and use it on occasion.

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Ali February 11, 2013 at 3:52 pm

Good thoughts, Karen! Great call on reminding everyone to be sure and check the state laws on things like that. I definitely recommend no investor charge a large option consideration either. The point of that consideration is not to take advantage of anyone, it’s to have the tenant have a little skin in the game. Great comment, thank you!

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Melodee Lucido February 9, 2013 at 10:03 am

Hey Ali,

I didn’t know you did l/o’s. As a landlord I can see the benefits for you, for sure. You get a family in the house that will treat it as their own not just some pit stop on the road that they trash and move on.

One must be very careful to act with integrity and purpose in these transactions just as in other niches. What goes around can come back around and bite you on the other end.
Lease options, by many investors, are considered just a shameful scam.

However, the way I do them, as taught by my mentor John Jackson, the qualifying happens before they’re ever in the property so the success rate of the t/b exercising their option is about 90%. It’s not something that is considered down the road. And the majority of t/b’s that I work with must go through a credit restoration/mortgage preparation program.

The option consideration is usually 3-4% the way I do them and the monthly lease payment is at the top of the scale and above. The reason it’s set up this way is so that when they are ready to buy they are already set up in a way that will make it easier to get their mortgage.

See, for me to put someone in the prop just cuz they have a pulse is setting them up for failure and can be viewed as a scam—which many do view l/o’s as.

Also, I find t/b’s for the seller not for myself. So if I just put a warm body in their house and the seller is very hopeful that the t/b will purchase the house at the end of the agreed upon term–usually a year or less—then I have misrepresented the transaction to all.

I like to set things up powerfully from the get. By doing this I am building trust amongst people and in the world. Most potential t/b’s that go into a lease option, if chosen carefully, do desire to have a home sweet home of their own. And the majority of sellers want the house sold so they can cash out and move on.

They are relying on me to guide them and to deal fairly and honestly in their best interest.

I know there are many ways to view these transactions. I want to be known as the woman who is making the world a better place by helping buyers and sellers get what they want.

Thanks for bringing this up Ali. I look forward to hearing what others have to say about this.

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Ali February 11, 2013 at 3:56 pm

Thanks, Melodee, excellent points. Great inputs to give folks insight into the wholesaling side of lease options while I only know about them on the rentals side. I agree with you, integrity is key. Even with the rentals, and even with it said that most don’t end up exercising the option, that is not to say that we do not do full qualifications up front. The tenants won’t fully qualify up front (because if they did, they could just buy the house then, duh), but the 3-year time frame, they should be able to feasibly get qualified in those 3 years. That’s the whole point.

There have obviously been scammers in this field in the past based on people’s reactions to the idea of lease options, but I personally have no idea what happened with those or who took advantage of who or when. All that matters is, do it with integrity now and everybody wins!

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Brian Gibbons February 9, 2013 at 11:01 am

I have been dealing with lease options since 1986. Just getting a warm body in as a Tber is a business plan and a poor one. Caring about your Tber getting financed is not popular by alot of REIs. It takes work to mortgage prequalify and get a FICO coach to increase scores.

If you don’t care about your local reputation, sure put anyone in there. Your 95 percent failure rate will continue. And keep that option fee, who cares, right? They are just tenants anyway. And if they bring you to court for disguised installment sale, just the price of doing Busines paying legal fees, right?

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Ali February 11, 2013 at 3:59 pm

Good points, Brian. All valid. I agree, there needs to be a solid effort and consideration for the reality of tenants qualifying to buy at the end of their lease. Business plans based on just making money never win. But basing them on good principles and a solid care for everyone involved can be really awesome.

Plus, even if you are only thinking about it from solely a business make-money perspective, it doesn’t help to just put a warm body in there anyway because if they don’t care about the buy later or are trying, that negates every benefit I listed up above. The goal is quality tenants who care. So find those, help them by trying to get them into a good house, and you benefit during the course of the lease agreement.

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Charles Boehm Hill February 9, 2013 at 11:40 am

Thank you for sharing this informative and experiential article. We specialize in lease options and concur with your assessment. Thanks for also pointing to another exit strategy in lease purchasing.

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Ali February 11, 2013 at 4:00 pm

Thanks, Charles! If you have any extra tidbits you’d like to share from your experiences, share away! I’m sure everyone would love to hear them.

Keep on keepin’ on!

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Matthew Roybal February 9, 2013 at 2:48 pm

Hi Ali,

I definitely see the benefit of doing lease options to make money as your article states. But I have to agree with some of the previous comments. There’s definitely some legal and ethical implications with a 95% failure rate regardless of them signing a contract.

I just have one question. When you sign a lease with your T/B, are you FULLY disclosing the 95% failure rate of the “program?” Can you explain why or why not?

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Ali February 11, 2013 at 4:05 pm

Hi Matthew, great question. Honestly, I can’t answer that because I have property managers who do the actual lease signing and everything associated. What all is discussed in that sit-down, I’m not certain so I don’t want to pretend I know the answer or make one up.

I will say this though, and I probably should have clarified this in the article- The 95% rate is not necessarily a reflection of any wrongdoings, any unethical behavior, any unethical anything. Truthfully, I would say that the majority of people who don’t exercise the option don’t do it solely because they are moving to a different area. Job transfer, want to live somewhere else, who knows why. I know me, I’ve never stayed in one place for more than 3 years, not even the house I bought for myself (job transfer in my case). Then I’d say the next biggest reason is that they just couldn’t get that last bit of qualifying or extra cash for the down payment. It’s really that simple, and no harm done. Plus, they can renew the option again to try a second time if they want.

It would be one thing if they were signing a contract that had a ridiculously high option price, or a stupidly large option consideration as Melodee pointed out, but these contracts have nothing un-feasible in them or out of the ordinary. So from a legal standpoint, there’s not a lot of ground to fight against someone just not wanting to buy or not having the cash when the time comes.

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Matthew Roybal February 11, 2013 at 6:31 pm

Hi Ali,

Thank you for the informative and honest reply. I re-read your article thoroughly and had a constructive discussion with my wife (whom thought your strategy was great). And I have to admit that I may have been somewhat mislead by the 95% number and still have some unanswered questions.

My previous experience with lease options was to collect as big of an option fee as possible and set in a higher price for the future purchase. When I tried to implement this myself, I thought at first that I was just uncomfortable with the process procedurally (cold calling, door knocking, etc.). While that was partly true, later after getting more education, experience, and exposure, I realized I also felt like I may be taking advantage of people in bad situations. And that made me very uncomfortable.

Therefore when I heard 95% failure rate it caused me to have a lot of doubt again before asking more questions. So I’m wondering about a few things, which maybe is for another blog but here they are:

1. When you collect a “Payment of an “option consideration” in lieu of a security deposit.” Is that equal to one months rent? Or is the management company getting a larger option for you? Someone else mentioned 3%?

2. I was taught in real estate to disclose, disclose, disclose if there’s ever any doubt. If you ever find out what exactly your T/B’s have disclosed to them, I’d be very interested to find out.

3. If your T/B does stop paying rent, are able to evict normally where you operate? Have you personally experienced this from a lease option? And out of curiosity, do you recommend any states to avoid this?

Ok that’s it. Sorry for the long reply but I figured it would be better to get more information before making assumptions. Thanks again.

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Ali February 11, 2013 at 6:48 pm

Hey Matthew! No worries, I realize now I should have added some more explanation to that failure rate before shooting off that dramatic of a number. Your story about learning after the fact was was going on when you were doing the lease options is interesting and a perfect example of how to learn from experiences.

Unfortunately I can’t answer the bulk of your questions since my property managers are the ones who do all of that stuff (get the disclosures, evictions, etc.). The managers that handle that property for me specialize in the lease options / rent to owns so they are much more experienced than I am.

I might be able to help with the option consideration though. Normally it is roughly the amount of one month’s rent. Occasionally however they will raise it depending on the situation with the tenant in terms of qualification. If they have a lower credit score than desirable or a past eviction or some kind of minor blemish that won’t necessarily rule them out for buying later, but is a red flag, then they may increase the consideration amount so that the tenant has more skin in the game.

Seth February 9, 2013 at 4:12 pm

Awesome article Ali – this was seriously helpful, as I’m thinking through a few deals of my own with a Lease Option spin on it. Thanks for taking the time to put this together!

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Ali February 11, 2013 at 4:05 pm

Thanks, Seth, I appreciate it!

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John Jackson February 10, 2013 at 1:53 pm

When people ask me why I started Leasing to Buy, this is the perfect post to direct them to. I started LTB because lease options were used to RIP PEOPLE OFF!! “Hey, let’s increase the price of the house to some random # that it will never appraise for, then get people who are barely scraping by to give us what little savings they have, so they can get into a house they can’t afford, and even though nothing really works in the house, we’ll tell them to pay for everything that we as the owner didn’t want to jack with, and in a year, we’ll kick them out, and do it again!”
That’s why we brought the credit improvement in house, help them establish credit, brought the home warranties in place, have the financing in place, only work with nice houses, and we actually screen the tenant/buyer based on DTI, credit, past history, public records, and make sure they should be in a position of finance, and not just let their option fee be the key to their approval.
10 years in the biz and an A+ rating, because we operate with ethics and values.

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Brian Gibbons February 10, 2013 at 7:50 pm

I can attest to John Jackson’s ability to get Tenant Buyer’s financed. His In House FICO Coach is one of the best in in the USA in improving scores.

Working only with nice houses with nice sellers beats Wholesaling most of the time, at least the sellers appreciate what we do: Get full price on terms in this tight credit environment.

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Ali February 11, 2013 at 4:10 pm

John and Brian,

Good points. John, sorry it sounds like you’ve experienced some major ripoffs in this field, and I regret to say that I don’t know more about them to speak better to those. But absolutely, any lease option I work with has a completely reasonable set option price, the non-refundable option consideration is rarely more than a normal security deposit, and the tenants are qualified beforehand to the point that it is assumed they should have no problem buying later. As I said in another comment, it is rare that people don’t exercise for any other reason other than they decide they don’t want to live there anymore or the end up not having the cash. As far as credit scores and such, it is admirable to help them out with things like that, but I also leave that responsibility to the tenant to deal with. It isn’t my job to fix whatever reason it is they don’t currently qualify to buy, BUT, I can (and do) definitely support them and help them where I can and I make sure they have every potential to qualify later (rather than putting in someone who will never qualify and just taking my money and running). If at that point they don’t do what is necessary to qualify, that’s on them. But I will always give the option to renew and give them another shot.

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Richard Bazinet February 10, 2013 at 3:43 pm

Absolutely a great strategy Ali. There are many variations of lease-options. About your experience with the bad tenant and the eviction, this emphasizes the importance of conducting the appropriate due diligence process in evaluation potential tenants. I use a 4-step system and never had a bad tenant.

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Ali February 11, 2013 at 4:11 pm

Hey Richard, absolutely. The property management company in charge of that house, I never could stand and let them stay with it way too long. Their qualification requirements were horrible.

Any chance you want to share your 4-point system? Or at least the big points you focus on?

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Luciana Abril February 10, 2013 at 7:22 pm

I am a fan of the Lease Option for all of the advantages that Ali mentioned. There is however a drawback that wasn’t mentioned. At the onset of a new transaction, you set the sales price. Some seller’s use “appraised value” at time of sale which is probably a better way to go but, for this experience that I want to share, I used a fixed sales price. The sales price that is set is the same as it will be in 3 years regardless of market value. Right before the market boom in 2004 I did a l/o. During the 3 year contract the house had appreciated by $100,000 that no one expected but, a deal is a deal and I was syked up for the loss. A couple of weeks before the end of the 3 yr lease my tenant called to say she had everything in order and was prequalified to buy my house. When it came time for her to excercise her option, buy the house and make that last months payment I heard nothing from her and she wouldn’t answer my calls. I finally took a trip down there to see what the problem was and found the house empty. She had skipped out on me and bought another house instead. Was I upset? Heck no!!! I put it up for sale and collected my $100,000. I don’t see l/o as a scam or unethical at all if all parties enter into it sincerely and honestly. It’s a win-win situation for the t/b and the seller. The t/b has an opportunity to buy a house under terms that they wouldn’t normally have and the seller has all the advantages that Ali mentioned plus the satisfaction of knowing that they’re helping this family own their own home. If the t/b doesn’t exercise their option it’s because they failed to position themselves during this opportunity that they were given or, they do what my t/b did and buy another house instead. And, if they don’t/can’t buy the house then the seller gets it back and has the option to do it all over again so, what’s wrong with that? I think that most REI’s would rather have it back but are OK with it selling to the t/b… otherwise they wouldn’t have done a l/o to begin with. I wonder what percentage of the 95% that don’t exercise their option are those who buy another house instead (and think they’re screwing you while they’re at it.)? I want to be known as the woman who gives everyone who thinks they can a chance…and, not give them just a year or less to do it. I also wouldn’t want to assume anything on the part of my sellers.

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Ali February 11, 2013 at 4:15 pm

Luciana, ahhhhhhh what a story! If for no other reason, the $100,000 appreciation :) I love it.

But yes, absolutely, you bring up a very good and realistic point here. A lot of people claim these are scams, but the reality is that the investor doing it could easily lose out on a lot of money themselves! The option price is set ahead of time, so if when the tenant wants to buy, the set price is still the set price. The investor can’t charge more than what was set. In this case, that was $100k extra the investor could have made (assuming the tenant had bought at the set price). So I’m not sure where the unethical claims come into play (except for putting in obviously unqualified tenants) when the tenants could easily land a house for pennies compared to what it is worth at that time.

Great story!

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George February 10, 2013 at 9:39 pm

Very, very good and informative article. My question has to do with p property that’s currently mortgaged. Can I exercise the “rent to own” if I am paying the mortgage payments at the same time? How does that work?

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Ali February 11, 2013 at 4:16 pm

Hi George, I’m not positive if I know what you are asking… in this case, you own the house, your tenants are renting with the plan to buy it at the end of a set term, and while they are paying the ‘rent’, you are paying the mortgage on the house?

If that is all you are talking about, absolutely, the option can be exercised. It’s no different than if you had random tenants in for a couple years and then decided to sell the house. You can sell regardless of whether or not you were paying the mortgage.

Was that your question?

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John Jackson February 11, 2013 at 4:29 am

Lease options are not unethical, and neither is owner finance, but if you purposely set things up for the buyer’s failure, it is. If you let someone that makes $3k a month get into a $160k that they will never qualify for just based on DTI, then you are doing a disservice. IF you are raising the option price to a figure you know it won’t appraise for, then it is.
If you are going to offer lease options, then you have to:
Understand the basics of mortgages, including how to calculate DTI, and what the lenders look for.
Either utilize a credit improvement company, or establish a relationship with a legitimate one to at least refer to the tenant/buyers.
Structure the numbers properly so they work for the lenders, and set the transaction up for success.

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Ali February 11, 2013 at 4:17 pm

John, perfect explanation! I agree and thanks for sharing that so everyone can understand what needs to go into it.

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Joe JJ February 13, 2013 at 5:09 pm

sounds like a shaky business practice and fraud to me
Long term, such businesses will not succeed.

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Ali February 13, 2013 at 9:34 pm

Hi Joe, thanks for commenting. If you don’t mind, would you care to elaborate on why you feel that way? I’ve been trying to figure out why people see this as a scam option.

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Eric Stifel February 24, 2013 at 10:28 pm

Hi Ali,

I’m an investor in North Florida, and have been learning more and more about this strategy lately and was getting excited about it until I was talking to some of my local title companies about it. I am now aware that you don’t need a closing agent to do a l/o deal, but the negative responses that a number of them threw at me, really caught me off guard.

I have been marketing for potential “buyers” and have a list building. I am uncertain as to if I really want to pursue it now that I am seeing all the negativism directed towards this strategy.

Personally, I think it is a win win for all parties involved, provided you don’t put a potential buyer in a house they could never qualify for. Properly screened, you are giving a person a chance to own a house that would otherwise never get that chance, or many years from now anyways.

Not sure which way I’m going to go with this, but In the mean time, I think I’ll keep marketing for potential buyers and see where it all goes.

Thanks for the informative article.

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John Jackson February 25, 2013 at 6:26 am

Hey Eric,
Lease Options are a GREAT way to help people, adn are completely fine, but as you pointed out, need to be structured for SUCCESS, not FAILURE.
We’ve done over 450 lease options and to great success, but only because we structure them properly (as far as the #’s etc.) and filter out people based on who we can actually help get financed.
Unfortunately, lease options have been used to just “make money and rip people off”. I may have misinterpreted Ali’s post, but her post came across to me as a way to use lease options to make money and set them up for failure.
I’m sure Ali doesn’t approach real estate that way, but sometimes things don’t come across as intended in a blog or post.
Lease options are great and becoming more and more of the way to get into a house, even for those that have good credit, but are self employed.

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Eric Stifel February 25, 2013 at 7:06 am

Thanks John for your input. As I stated previously, I’m not against doing them yet, just need to get more information I guess. I think the strategy is fantastic, in theory. I am still actively building my potential “buyers” list. If anyone is working this strategy in Florida, I would love to get with them and learn the things to do and not to do. I’d be willing to share my buyers if someone was interested in partnering/mentoring me on a few of these before I go it alone.

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Brian Gibbons February 25, 2013 at 8:20 am

Hi Eric,

Florida has been doing wholesaling and lease option training (Jacksonville, etc) since the 60s. Have you tried the REIAs in Florida? They can point you to title companies and contract attorneys.

Here is a link for the state REIA. http://flreia.com/faqs/ I hope that helps.

Brian

John Jackson February 25, 2013 at 8:49 am

I wouldn’t worry about “still actively building your buyer’s list”…just go get the houses.
If you get a list of 50 people that are interested in getting into a lease option, then a few months later try to get houses, those 50 people have already signed another 12 month lease or moved on.
Focus on inventory first.

Ali February 25, 2013 at 12:45 pm

Hey John,

Sorry my article came across that way as I most certainly didn’t mean for it to. I had never even considered how L/Os could be used as ripoffs until people started commenting about it! I see it as setting everyone up for a win-win, and as people mention, making sure to do it all reasonably and put in tenants who truly may be able to buy the house later.

Sorry for the misunderstanding!

Ali

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John Jackson February 25, 2013 at 12:54 pm

No prob Ali!
I started my company BECAUSE people were using lease options as a way to rip people off and I hated that.
So, I guess I’m sensitive to that.
LO’s are a win/win but have to be structured properly.

Brian Gibbons February 25, 2013 at 10:40 am

re: actively getting buyers first, I would say this…

1st 3 months in business market for BOTH LO Buyers and Sellers.

Why? It is good to use a “prop” to show the seller that you have potential buyers for your house!

I use a VIP Home Buyer’s sheet. I take a photo of them in the top right hand corner w my iphone. I block out names.

When you do not have a deal yet or testimonials from happy sellers or buyers on LO, these buyer info sheets says you are “for real” to the seller.

Also, Meetup.com groups are great too for Buyer and Seller Leads.

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Eric Stifel February 25, 2013 at 9:13 pm

Thanks everyone for your comments and replies, I’ll take them all into consideration.

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Eric Stifel February 26, 2013 at 7:08 am

I am still interested in a mentor in North Florida who would consider helping me with this investing strategy.

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John Jackson February 28, 2013 at 7:08 am

Michael Carbonare is in Florida.
Naked-investor.com
Tell him you think John Jackson is amazingly brilliant.

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Melodee Lucido February 28, 2013 at 8:46 am

: > I don’t think you are brilliant John. I KNOW it.

Thank you sooo much for coming to California to share with my creia in Santa Barbara. Everyone is talking about how great your talk was and they’re looking forward to you talking at the expo in July : >

Thanks coach!

Michelle Moore July 22, 2014 at 6:11 am

I have been trying to convince my husband that lease-options are a good idea for us, but our big concern is that the tenants will view this as license to steal our kitchen cabinets, etc. when they move out since they were “buying” them and now we are trying to “unfairly” repossess our property. What is your experience with this? Do you have a higher amount of damage than with regular tenants because of the revenge factor? (It has always sounded silly to me that people don’t pay their mortgage payment and then destroy the property before foreclosure, but we see this a lot in our area. It is not the bank’s fault that you cannot fulfill your obligation!)

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Ali Boone July 22, 2014 at 12:55 pm

Unfortunately I can’t say for sure Michelle as I haven’t gotten to that point with the tenants. I guess it would be possible for them to view it like that but the flip side is that oftentimes, and a lot of the reason for the lease option model, is to attract higher quality tenants who may actually qualify for a house later on and they care more. So it’d be nice if them caring meant they didn’t steal things, but who knows.

I think it will a lot depend on the property type and quality, as well as quality of the market/neighborhood, to help attract those higher-quality tenants who will act right.

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Michelle Moore July 22, 2014 at 5:26 pm

You are absolutely right about location and quality making a huge difference. We sold all of our scary neighborhood houses in 2007 and started buying again in 2011-2014 in better areas fixing them up as if we were planning to flip them, then renting them out. We have far less tenant turnover now and lower repair costs when people do move out. I guess we would probably have a better experience with lease-option as well. Thanks for the informative article!

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