Buying a property, holding onto it, and then selling it at a later date for profit generally puts you, the real estate investor, in the undesirable seat of being a landlord. However, if you want to buy and hold properties, without ever having to deal with tenant or home maintenance and repair issues, there is a great alternative - the lease-to-own option.
With a lease-to-own option you lease your property to someone who at a later date plans on purchasing it from you. Generally the lease length is at least 3 years, and the tenant is given a credit each month for part of their payment. This credit can then later be used as a down-payment on the home. The lease option serves as monthly income for you, and it helps a tenant who is 'down-payment poor' to eventually be able to purchase your property.
Lease Option Contracts
The key to making the lease option work for you is to write your contracts in a way that makes your tenant act as the homeowner and you as simply the lender. In exchange for a good lease option agreement for the buyer, you need to require them to be in charge of all maintenance and repair issues which come up while they are living in the home. Say for example that the water heater stops working, it is then the buyer's responsibility to purchase and install a new one. This saves you money from having to hire a property manager, and it also saves you the headaches of having to deal with typical tenant issues.
Finding a Quality Tenant
To make this work you need to find quality tenants who will treat the property well and who are responsible. By screening your potential tenants, you can find the right people to live in your homes.
The first thing to find a good tenant, and one with a real interest in your property, is to run a simple 3 line ad in your local newspaper about the property. Let all the return calls go to an answering machine and then sit down on Saturday morning and return all of the calls. Let all of your callers know that you will be available to show the house on the next day at a specific time. Tell everyone that has called the same day and time and show them the property as a group. This will save you a ton of time and will insure that you aren't wasting your time with people who are not serious about the property. In addition, it will show potential tenants that there is real desire and interest in your property.
Once you have shown the property, there will invariably be some competition amongst the viewers and those who are interested will stick around to fill out an application and talk to you more about what you are offering. Those people who stick around and take the time to talk to you about the property are likely going to be the best tenants to choose from.
Once you have your potential tenants information, then it is time to pull their credit reports and look at their situations. What you are looking for is a person who doesn't have huge glaring issues on their credit, like a recent bankruptcy, and who are paying their obligations on time. You are also looking for those people with stable and long-term employment situations.
By finding good quality tenants with a good solid interest in your property, you can make lease-to-own options work for you as well as your potential buyers.
