Why I love Lease Options

Question

I live in Gilbert, Arizona and In 2015 I started flipping single family homes in Mesa, Chandler, Apache Junction, Queen Creek, Coolidge, Casa Grande, and Florence, Arizona for profit. I did 3 flips in 2015 and I earned some money on 2 and I lost on 1. In 2016 I flipped 7 properties with a partner and we both made about 95k each. But in 2017 everybody was flipping and the profit margins seemed to get smaller and smaller so my partner and I switched strategies. We went to a 3-day training on lease options and decided to give lease options a try. Nine years and hundreds of properties later I can say that I love lease options and that lease options made my partner and I both multimillionaires.

Here are some of the highlights that make me like lease options over flipping or regular rentals.

1. Generally better tenants

2. Tenant take better care of the property and usually handle the repairs

3. The property usually doesnt have to be perfect so you can market the property as a fixer upper

4. Up front option fee. 5. Rent is normally a little higher than market.

6. Usually easier to manage and it takes less time.

7. Longer leases

8. Little to no closing costs when the tenant buys the house

9. Tenant buys the house at a future value that is higher than the current value when they move in.

10. No fixes before they purchase the house. They agreed to accept it as-is.

11. The profit is usually two to three times the profit of a flip.

12. I enjoy helping people become homeowners that may not have been able to without my help through my lease option program.

Lease options, when done right, tend to decrease risk and increase profits.

Let me know if you have any questions about how lease options work.

Mira Atanasova · Answer

Thanks for sharing this. I really appreciate the long-term perspective. Lease options are something we’ve been studying more seriously, especially given how different the market looks compared to even a few years ago.

I do have a couple of practical questions, if you don’t mind sharing your approach:

• How do you typically structure the option fee?• Is it non-refundable consideration for the option itself,• credited/deducted from the future purchase price if the tenant exercises,• or refundable under certain conditions?
• How do you usually determine the future purchase price when the lease option is signed upfront (for example, a 3-year term)?Given the rapid appreciation and then rate-driven shifts, we’ve seen in the last few years, it feels like future value has become much harder to predict than in earlier cycles.

Would love to hear how you underwrite that risk and whether you use fixed pricing, appreciation assumptions, or built-in adjustment mechanisms.

Thanks again for posting- great insights