As an aside, if you are going to do a wholesale deal, you write it up as a "sale and purchase agreement" or a "straight option". You assign the deal for a fee.
Lease Options are 2 types: Lease Option Assignments where you lease and option as a principal and assign for a fee.
Sandwich Lease Options are RISKIER and don't do them if you are BROKE!. You have to pay the seller even if the tenant buyer stiffs you and damages the place! Have 3 - 4 months of rent in reserves.
Re Lease Option Assignments, there many pretty houses with little equity, or thin deals. These sellers are current with their mortgage and they want to be able to get the most amount of money out of their house without damaging their credit rating, and they don't want to do a straight rental.
It amazes me that people don't think of lease optioning and assigning the deal, and getting out of it, and making an assignment fee, like wholesaling. To me a lease option assignment (LOAs), or wholesaling lease options, or cooperative assignments, which is all the same thing, is one of the easiest and fastest ways to make money today.
It is NOW in May of 2014 a perfect storm with over 20 million houses having very little equity all of the United States. The sellers need some kind creative solution to their home sale situation.
Marketing: I look for landlords, listed houses with agents, expired listings, FSBOs, and houses that have been purchased between 2006 and 2008, at the top of the market. All these "boxes" to look into for houses that had very little equity and you can do a lease option assignment in 10 hours, make 3% with little hassles; I feel LOAs are one of the best opportunities today in most markets.
Even in a very expensive market like New York or San Francisco or Los Angeles, if you can be thin equity deal specialist, you can make 3%. 3% of $400,000 is $12K, not a bad payday.
On the buyer's side, you need to get the word out that you help people that been turned down for mortgage and still that their dream home today. You can do Meetup groups, flyers, free reports on craigslist, all sorts of things. And understand FHA and Conventonal Underwriting.
Re Dodd Frank, if it is a straight lease and pure option, and you assign it, you are generally good to go re: DF. I am still getting every TBer to a RMLO, I do not want my seller at risk down the road. It is overkill but I want to sleep at night.
In closing, when you compare this with the "needle in a haystack wholesaling", that takes 6 to 12 months with consistent direct mail marketing. I think that "subject to" and "lease option assignments" are both a lot easier and faster.
I did my first one in 1986, when interest rates were over 10%, well before many of BP nation have been born.
If it's an instance where you have gotten a home owner to sign an agreement with your monthly rental and what they will sell the home for in X amount of months. ex: You get home owner to agree to $500.00 a month and a purchase price of 80k within 3 years. You sign a contract with a tenant who wants to rent to own but at say $700.00 a month and purchase price of 90k.
In my limited level of knowledge I believe that is the general concept.
You net a cash flow of $200.00 a month and the mark up when sold.
Honestly Derrick it's not an area I know enough about to influence your decision. I'm only familiar with the theoretical concept not so much the application. Hopefully someone more knowledgeable than myself will chime in!
"Is a lease option a good way to get started in real estate?". IMO - no, especially if you don't have any money. In most lease options, you're the one on the hook for the rent. If your tenant can't pay, how are you going to make the payments?
As an aside, if you are going to do a wholesale deal, you write it up as a "sale and purchase agreement" or a "straight option". You assign the deal for a fee.
Lease Options are 2 types: Lease Option Assignments where you lease and option as a principal and assign for a fee.
Sandwich Lease Options are RISKIER and don't do them if you are BROKE!. You have to pay the seller even if the tenant buyer stiffs you and damages the place! Have 3 - 4 months of rent in reserves.
Re Lease Option Assignments, there many pretty houses with little equity, or thin deals. These sellers are current with their mortgage and they want to be able to get the most amount of money out of their house without damaging their credit rating, and they don't want to do a straight rental.
It amazes me that people don't think of lease optioning and assigning the deal, and getting out of it, and making an assignment fee, like wholesaling. To me a lease option assignment (LOAs), or wholesaling lease options, or cooperative assignments, which is all the same thing, is one of the easiest and fastest ways to make money today.
It is NOW in May of 2014 a perfect storm with over 20 million houses having very little equity all of the United States. The sellers need some kind creative solution to their home sale situation.
Marketing: I look for landlords, listed houses with agents, expired listings, FSBOs, and houses that have been purchased between 2006 and 2008, at the top of the market. All these "boxes" to look into for houses that had very little equity and you can do a lease option assignment in 10 hours, make 3% with little hassles; I feel LOAs are one of the best opportunities today in most markets.
Even in a very expensive market like New York or San Francisco or Los Angeles, if you can be thin equity deal specialist, you can make 3%. 3% of $400,000 is $12K, not a bad payday.
On the buyer's side, you need to get the word out that you help people that been turned down for mortgage and still that their dream home today. You can do Meetup groups, flyers, free reports on craigslist, all sorts of things. And understand FHA and Conventonal Underwriting.
Re Dodd Frank, if it is a straight lease and pure option, and you assign it, you are generally good to go re: DF. I am still getting every TBer to a RMLO, I do not want my seller at risk down the road. It is overkill but I want to sleep at night.
In closing, when you compare this with the "needle in a haystack wholesaling", that takes 6 to 12 months with consistent direct mail marketing. I think that "subject to" and "lease option assignments" are both a lot easier and faster.
I did my first one in 1986, when interest rates were over 10%, well before many of BP nation have been born.
Hi All, check out the below Bigger Pockets podcast. Wendell provided some GREAT info about how to get started using a rent to own strategy when you have little available funds to work with. Great show! Hope this helps...
BP Podcast 065: Creative Investing, Mistakes, and Bulletproof Vests with Wendell De Guzman
It amazes me that people don't think of lease optioning and assigning the deal, and getting out of it, and making an assignment fee, like wholesaling. To me a lease option assignment (LOAs), or wholesaling lease options, or cooperative assignments,which is all the same thing, is one of the easiest and fastest ways to make money today.
@Account Closed can vouch for this...AS I type I'm putting contracts together for 4 houses...lease option assignments...one will net me $5800, another is $7500 and the other two are smaller but I'm doing them as a favor so they are only $3500 each.
Guess what I risk? $10 each for option consideration.
Do you have $10? It looks like you do.
I don't cover rents...that is a SLO or sandwich leads options where you stay in the deal...think of "subletting an apartment" Brian already mentioned SLO's above. This is where we lock it up and assign it...
Think of wholesaling JUST LIKE BRIAN SAID...When I lock up a property with a purchase contract...I'm not buying it...I'm selling paper...to the end cash buyer...
In this case...you are selling paper to the end tenant/buyer...