I an currently in the process of having to find a new tenant and executing a new lease on a 4 bed 2 bath SFR property that I have in the Copperfield area in Houston. I would like to consider a lease option. For me, a major reason that I may consider doing a lease option is because I would assume (and have heard this sentiment echoed from investors as well) that the tenant in a lease option is significantly more-likely to take care of the property, among other things.
I am curious as to what the BP community would recommend around doing a lease option versus finding a tenant for a lease contract? Pros/Cons? Lessons learned? Any advice whatsoever...
@Jordan Decuir Its apples and oranges. The rental, as you know, makes you responsible for all maintenance, the L/O puts the burden on the prospective owner. I love Lease/Option, as its much harder to get a mortgage and people will take more care of the property, to become the owner. I would make the down payment more, I used 1500 on my last one, but I'd go 3-5k. Find someone serious and offer work for equity. This way the more they improve the house, the less it costs them and should something happen to them, you get them to improve the property for the next L/O or by then maybe higher rental. I think L/O gives owners more choices. I have 3 L/Os and will add more.
Personally, I'm not a fan, but there are plenty of guys on here that love the idea. My reasons for opposition:
1. It takes me time to find rental homes (I don't do MFH in my market) that are very profitable. I don't want to give them up for some short-term cash.
2. I am not convinced "owners", i.e. tenants with options, take better care of the homes than I would as the property owner. I base this in large part on how many dilapidated owner-occupied homes I see out there.
3. I'm not interested in the process of taking the property back if/when they don't pay. Getting rid of a non-paying tenant is easier than foreclosing on a non-paying owner.
That's my take, and I'm sure the pro people will give you their reasons. I don't think there's a right or wrong answer here, just what works in your market and what makes sense for you given your own dynamics.
@Jordan Decuir I mainly use lease option on my properties. I own many. It's wonderful. I get between $5k-$9k per deal. Sometimes $3k option payment if the house needs work. Read: Straight Path to Real Estate by Kris Krohn. One of the best books ever on Lease Options.
Pretty much 95% of what we do is rent to own (lease with purchase option). You are correct. These we look at as "buyers" needing time for credit or seasoning versus renters - huge difference. We typically take a non refundable down payment and a process to prequalify them to make sure you are putting someone in a home that actually can and will cash it out- morally, ethically and legally it's the best route. Hope that helps - seems like you're on the right track. Any more detailed questions feel free to private message. Best of luck.