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BlogsThe Real Estate Investment Center Begin with the End in Mind

Posted over 15 years ago

Begin with the End in Mind

There has never been a better time to invest in residential real estate. Prices are at historic lows.  For example, in metro Detroit, you can purchase a 3 bedroom brick home on a basement with a garage for well under $20,000.  In addition, there are plenty of would-be first-time homebuyers looking to own a home of their own and start to build their wealth.

The banks have tightened credit guidelines making it more difficult for a first-time buyer with damaged credit to obtain financing, however, this presents a world of opportunity for real estate investors.  The best way for sellers to fill their properties and maximize their cash flow is to "sell" their residential homes using a Lease Option.  Just this past week, I sold a home in a blue-collar suburb of Detroit using a Lease Option.  

The buyer and her husband are both employed full-time, however the husband was seriously injured in a car accident earlier this year.  Medical bills piled up and as a result they were forced to file bankruptcy.  The buyers wanted to remain in the neighborhood and didn't want to "just rent."  They didn't have quite enough money to do a land contract or contract for deed, so we sold them a completely rehabbed bungalow featuring new kitchen and bath, huge deck for only $850 per month.  They provided a sizable non-refundable Lease Option fee which will go towards her down payment and agreed to be responsible for all repairs.  Keep in mind that the home has been totally updated including new furnace and updated eletrical, etc. so the buyers shouldn't have any major issues.  However, selling on a Lease Option removes the seller from having to do any repairs such as sending someone over in the middle of the night because the toilet is plugged up or because the garbage disposal is broken.

In addition, the buyer has an option on the property to purchase it in 3 years using the Lease Option fee as her down payment assuming she makes all payments on time. The buyer has a home she loves, the seller has a 100% passive investment and everybody is happy. Win, win, win.

Comments (4)

  1. Hi Karen - Good job on what sounds like a successful transaction with your buyer. I hope you don't mind my sharing with you how I do Lease Purchases to secure the tax benefits to me as an owner or for one of my out of state clients on properties I manage for them. We use two contracts. The first contract is a straight rental contract which leaves the property owner with all of the advantages of ownership while still spelling out the repair terms for the tenant. The second contract is a first right of refusal contract giving the prospective buyer a set time period to close the property at an agreed upon price and for that consideration they place a deposit equal to 3-7% of cost that will be credited at closing. When using one contract, the owner of the property is possibly "selling" the property at signing and financing the purchase. IRS case law is already showing property owners being hit with tax bills when expenses are disallowed and in some instances the phantom income from the sale has been taxed by the IRS. Just throwing it out there as a question to run by your CPA and Attorney. It never hurts to keep as many advantages as possible when owning real estate! Good luck and keep sharing your successes!

    Chris Clothier, over 15 years ago


  2. Derrick, check out "The 7 Habits of Highly Effective People" by Stephen Covey. Kind of a challenging book, but read a synopsis or two to see if you want to read the book.

    Jon Klaus, over 15 years ago


  3. "Begin with the end in mind" Thats a new concept to me. Amazing how we can learn great things everyday. Nice post and welcome Karen!

    Derrick Sakai, over 15 years ago


  4. Welcome to BP Karen! Great post! Detroit can be tricky but very profitable as Karen can also attest. It is one place you have to have someone on the ground advising you on the areas to operate and not operate in.

    Kevin Kaczmarek, over 15 years ago