Posted over 2 years ago

Control without ownership using lease options

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Control without ownership using lease options is a highly effective way of leveraging you real estate investing funds. When most people think about leveraging real estate funds, their first thought is a bank loan. Bank loans are very inferior to lease options. Bank loans come in different flavors (secured and unsecured) but all require the loan be repaid in addition to all of the expenses and fees that have to be paid even if something goes wrong. If something goes wrong, your credit is destroyed along with being saddled with a pile of late charges, fees, and more fees. Tons of risk and tons of costs. All of which is easily avoided when you control property without ownership using lease options.

Control Without Ownership Using Lease Options is an Option to Profit

Lease options are very different and much more profitable without the risks and costs of loans. The big leverage is having the OPTION TO PROFIT without the obligation to purchase. Although you want to make financially sound deals, having an option does allow for more risk without financial penalty.

Control without ownership using lease options overcomes the #1 fear that most investors have. The fear of becoming financially responsible for a house with a 30-year mortgage. That’s a lot of financial risk without assurance of a fair and reasonable profit. The sandwich lease with an option to purchase cuts the time down to between 1 to 3 years while also offering 3 separate profit points. All 3 profit points come without an obligation to complete the purchase unless you are assured of a profit.

The people you are doing business with like this because you are looking for a win-win-win contract. One that enables the seller to start generating cash from the property to cover the mortgage payments and have positive monthly cash flow. You make some money in the middle. You leave some profit for the person you bring into the deal at the end such as a wholesaler buyer who holds the property for long term profits. Or a retail buyer who wants to start building equity today but needs a little time before he or she can qualify for financing.

Your Key Role by Having Control Without Ownership Using Lease Options

A primary strength you bring to the table is that the seller and end buyer don't understand how a lease option works or the many variables that can go into a lease option contract. If you are flipping to a wholesaler, that person likely has at least a passing knowledge of lease options but probably not detailed knowledge. Helping others understand the process means one of your key roles is being able to fully set it up for them.

Another key role you play is taking options on the right houses. When you take out a lease option on a “pretty house” in a good neighborhood, you immensely increase both the number of end buyers you attract and buyers closest to qualifying to complete the purchase. Properties in nice neighborhoods also reduce your risk even further. These houses are typically in better condition and you don’t have to be much concerned about vandalism or depreciating home values.

Dollar Examples When You Take Control Without Ownership Using Lease Options

You’re looking for Sam the Seller who is opened-minded to allowing you to take control without ownership using the lease option. He’s attracted because you help him cover his mortgage and put some positive cash flow into his pocket each month. (If the seller owns the house outright or has a very small mortgage you want to consider the Subject to Existing Financing method).

Here is an example of terms that you could negotiate:

Down payment: $1,700 (first month's rent plus $1,000 option payment)

Rent: $700 per month

Option Term: 2 years

Sales price: $75,000

Your total out of pocket expense is $1,700 to take control without ownership using lease options. Better yet, you quickly recover those expenses when you put an end buyer in place. Your next step is bringing in Bill the Buyer who you prequalify. He is excited about the opportunity of future ownership through a sandwich lease when he qualifies to purchase within 18 months by taking out a mortgage. You need the 6 month cushion (2 years - 18 months) between your deal with the seller and your deal with the buyer so that you are still in control when the buyer makes the purchase.

Here is how the bulk of your profit is made. Your contract with the buyer looks something like:

Down payment: $3,800 (first month's rent plus $3,000 option fee)

Rent: $850 per month

Term: 18 months

Sales price: $89,000

The Total Dollars You Make by Learning How to Take Control Without Ownership Using Lease Options

You quickly recover your out of pocket expenses by making a decent profit from the higher option fee and the slightly higher rent. The higher rent brings ongoing positive cash flow to you. Your biggest pay off comes from the difference you pay in the purchase price and what the end buyer pays when he finalizes the purchase. Count 3 profit points – 1. higher lease option fee, 2. higher monthly rent, and 3. higher purchase price.

Circumstances will change the final profit you make but in this arrangement you’ll see a total profit from the deal of about $17,000 (1000% profit). 

What you need to do now is TAKE ACTION!

By Wendy Patton