Buying Real Estate with Lease Options- Is it a Risky Strategy

Many real estate investors think there are only two  real estate strategies available to them. Either “buy and sell” or “buy and hold.” After all, that’s what the big financial institutions tell investors they should do. You can take out a 30-year mortgage to buy and hold real estate or you can flip a few properties each year, using your own money or by having a money-partner. The same thing happens on Wall Street where the common advice is to buy and hold. Or the more adventurous become day traders, which is a form of flipping but using stocks.

But  I have found there is a much better alternative with real estate – you reduce risk and make more money working outside the box when buying real estate with lease options…

Many Strong Reasons Why Buying Real Estate with Lease Options Works Well

"Lease option" is a somewhat legal term for what is more commonly known as "rent-to-own" (also known as lease-to-own, lease/purchase, or lease with an option to purchase). Many people are familiar with rent to own for living room furniture, washer and dryer, and other household appliances. These businesses have been around as long as I can remember. And there is a good reason these stay in business – because they work. They work particularly well for people with limited resources but who are earnestly working to build a future. And it’s no different with real estate. Rent to own customers are the same hard working and sincere people who will be some of your best end buyers when you use the technique of buying real estate with lease options.

I’ve studied and worked with many investing methods over the past 30 years. I’ve had success with various methods. Today, I don’t hesitate for a second to state that I am fully resolved that buying real estate with lease options is the fastest, easiest, and least expensive way of investing in real estate. And more importantly to some of you, highly profitable!

Sandwich Lease Option Investing

One version of buying real estate with lease options is the sandwich lease option. This version requires the least amount of money on the part of the investor (you). You seek out a willing and distressed seller (yes, these exist in today’s markets) to help solve a problem for them. The problem to be solved is almost always financial but can come in many different forms. One of the most common is someone who needs to move a long distance and needs to sell fast. Another is someone that has inherited a house and is now expected to pay the taxes and insurance along with other costs. Still another distressed seller situation is someone who has a house in dire need of repairs and maintenance.

In the sandwich lease, you gain control of the property by paying a small lease option fee. You then flip it into another lease option to an end buyer (someone that wants to live in the home). Even if the house needs repairs, you can make most of those repairs the responsibility of the end buyer in exchange for a reasonable purchase price.

One of your many benefits with the sandwich lease option is the repairs improve your equity position even if the purchase option is never exercised. Just as importantly, the end buyer becomes more motivated to complete the purchase because they now have sweat equity and/or money invested in the repairs. The entire deal becomes a win-win-win for everyone involved. The seller has his or her problem solved, you make a reasonable profit in the middle of the sandwich lease, and the end buyer is in the position to become a homeowner.

Buying Real Estate with Lease Options Combines Strategies

We know most investing is based on one of two strategies. One is buy and hold long term for the cash flow. The other is buy and flip for a fast profit. Buying real estate with lease options is the best of both worlds by combining both strategies.

The lease side is essentially, a buy and hold strategy. You may not have bought the property outright but you do control it during the time of the lease. This entitles you to the rent profits as if you did own it. Also similar to buy and hold, you gain the appreciation in value when you sell in a sandwich lease arrangement. Even better, you accomplish this without the risks and responsibilities of actually owning the property.

The combination also comes with the flip advantage. Basically, that is exactly what you are doing by flipping it quickly (within days or weeks) to an end buyer for a profit at the end of the deal. Obviously, their option to buy - for a pre-determined price - is a huge part of the deal. It’s your biggest payday. It doesn’t get much better than having the advantages of both strategies - buying and selling PLUS collecting rent by holding the property in your portfolio.

 Without a doubt, you now understand why I find that buying real estate with lease options is the fastest, easiest, and least expensive way of investing in real estate.