Lease Purchase

[James Norton]

Hi. First, I want to thank the creators of BP for this wonderful site. I've been briefly following along and am eager to get started investing in real estate.

My question is for any experienced investor who does lease purchase deals, rent-to-own, lease with an option to purchase, ...etc. (same thing, different name)

I'd like to use this method, as my ultimate goal is to own multi-unit rental properties. I like that you receive cash flow every month, cash at closing, and have the ability to assign the deal to another party. 

However, what are the negatives of using this strategy? There must be some. Like, what if the person you sublet your contract to moves in and doesn't pay and you need to evict him, which may take a few months + legal expenses. Or what if you discover, after the tenant moved out, s/he trashed the property?

Sure, these things may be greatly reduced by how the contract is structured. But, like in any rental agreement, they are very real possibilities, are they not? 

So my question is, worst case scenario: The tenant moves in and stops paying rent and you need to evict. Or, they trash the place. As the middle-man in the deal, aren't you basically also acting as a guarantor, and wouldn't you therefore be held responsible for paying rent until the tenant was evicted, or reimbursing the property owner for repair? Even if only in the meantime, (assuming you could go after the tenant?) 

- James

[Brian Gibbons]

if you're doing Sandwich options get a license and learn landlord tenant law in Colorado.  Be a property manager in Colorado which will allow you the right to show properties.

 Understand that it takes capital like three or four months rent to have success with each sandwich lease property so if you don't have the money to protect the seller in case the tenant doesn't pay you, don't do sandwiches 

Also a word about Credit being tight and the tenant buyer having difficulty getting a mortgage

Don't put anybody in that property just because They have an option fee. 

Hire a RMLO or Mortgage Broker to be able to look through a credit application and a mortgage application

Look at debt to earnings ratio or DTI, look at credit, look at length of employment, look at length the residency in the area,

You need to sell to the tenant buyer the neighborhood and for them to want what the house offers the family,  to be able to step into that opportunity to get out of that apartment or rental property. 

For instance, not bumping into tenants in the parking lot, putting up with tenants parties at two in the morning, etc. 

Having their own property they can call home.

I recommend you get licensed and do a lease option assignments and make a quick 3% value as a fee and get out of the deal until you have some capital