LEASES OPTIONS RICHES
Another very popular real estate investing technique used by savvy investors is Lease Options or Rent to Own as it is sometimes known by. A lease option has been very valuable in my real estate investment toolbox. I use this technique to purchase real estate, and also in a slow real estate market to sell property, while still getting the full asking price.
WHAT IS A LEASE OPTION?
There's no mystery here. It is what it sounds like, two separate methods combined into one.
You have the lease, which is a bilateral agreement binding two parties contractually to perform specific actions. One party agrees to pay money in exchange for access to a property. The other part agrees to let or lease the property to the first party in exchange for a certain amount of money in set periods.
The option is a unilateral agreement binding the seller to selling a property to you exclusively, for a predetermined price, but at a later date sometime in the future.
HOW DO WE USE THIS TECHNIQUE?
For buying, this technique works extremely well. I have targeted investment property that I want to buy, but I don't want to get a mortgage on the property. So I ask the seller to lease option it to me for 5 years. This means that I will be responsible for making monthly lease payments on the property, but unlike a rental, anytime during or at the end of the rental period of 5 years, the seller has to sell the property to me. But, I don't have to buy it, if I don't want to.
You maybe asking yourself, what's the point, but just think if you knew that the property was going to appreciate 15 to 20% over the next 5 years, and you could then sell the property and make 50 thousand dollars by selling it to someone else, without ever owning it. Yea, I thought that would get your attention. This is a real scenario.
MAKE MONEY AS A MIDDLEMAN
(You can also use this technique to middleman deals and make 20 to 50 thousand on each transaction. Use a lease option to tie up a property, find a tenant/buyer, make them give you option money to move in. (3-5% down, you may have paid 1-2% to get the home) Then charge them a couple hundred dollars over and above what you have to pay to the seller, then at the end of the term, they buy the house and you keep what's between the price that you agreed to pay and what the home is worth after the 3-5 year lease period. This could be 20-50 thousand or more in some areas.)
For selling, this is also one of my favorites to use. When a real estate market starts to slow down because of foreclosures, too many new homes being built nearby or economic downturns, you have to be creative when selling your property, if you want to get it sold.
If you are trying to sell your property and you have tons of competing sellers in close proximity, you're going to have a difficult time selling your home unless you drop the price really low. But, if you have a mortgage on the home, you probably can't drop the price too low, right? So, what do you do? One way to sell a home in a slow market is to lease option it. Now in order to do this effectively you have to be in a position where you don't necessarily need all of your equity out right now. If you can afford to wait a short time to get cashed out then this technique will work for you. You can still get your full asking price without discounting like your competing sellers will.
I will lease option to someone for a term of 1 to 2 years, with a minimum of 3 to 5% down. After the term is up or during, they have to exercise their option to purchase or face eviction at the end of the term and lose the 3 to 5% that they initially gave me to move in, that money is always nonrefundable and is mine to keep.
But, if they go through with the purchase, I get my full asking price, where my neighbor took a big hit because he discounted his property in order to sell 1 to 2 years earlier. Plus, he probably paid another 5 to 7% in realtor fees, where I did not because I didn't need a realtor to find me a buyer. There is NO shortage of people looking for a seller who is willing to sell on installments or seller financing methods.
Before you try to buy or sell real estate on lease option terms, I recommend getting detailed step-by-step instructions, buyer and seller favorable contracts to protect your interest in the transaction. The worst thing you can do is give a buyer equitable title. This is where if the buyer defaults and stops making payments to you, instead of you simply evicting them, you go to court and find out that you can't because you have unknowingly given them equity in your house and now you need to foreclose on them in order to get them out of the house. BE CAREFUL!
For a free CD with step-by-step instructions on how to do lease options or other free real estate investing techniques visit: Http://Realestate-Ninja.com
