Real Estate Investing: Lease Options Offer Multiple Profit Opportunities
Real Estate Investing: Lease Options Offer Multiple Profit Opportunities
By Jordan Taylor
Mention “real estate investing strategies” and the first thing that typically comes to mind is buying and selling. But a strategy often overlooked and underutilized is the option—and the smart use of options can generate some fast and impressive profits.
An option gives the buyer the right but not the obligation to buy—but the seller is obligated to sell. Combine the option with a lease, and you have an excellent tool to use when you have a motivated seller with little or no equity in the property, or one who doesn’t have time to wait for the traditional sales process to run its course. Instead of buying, you lease the property with an option to buy. That gives you control of the property and lets it generate cash for you—but you don’t have to own it.
The rate of residential foreclosures in on the rise in many parts of the country. A pending foreclosure for any reason is just one of many situations where lease option strategies can be used. Other situations include sellers seeking debt relief or facing personal situations such as divorce.
“Lease options are a great way to get started investing in real estate through lease option, especially if you have little or no cash,” says Michael Van Horn, an advanced trainer with Wealth Intelligence Academy™. “Options let you control property without having to buy it, and you can profit at every step of the process.”
Why do people use lease options instead of an outright sale? Owner/sellers are likely to consider a lease option real estate investing when they need to get rid of the property but do not have enough equity to sell immediately through traditional methods.
For example, if the property has mortgages of up to 95 and even 100 percent of its market value, the seller would have to come up with cash to pay a real estate agent’s commission. On the other side, buyers who have flawed credit, who may need time to come up with a down payment, or who want to “test drive” the house or the neighborhood are all candidates for a lease/option deal.
One of the most common option strategies is the sandwich lease option calculator, which works like this: You lease a property with an option to buy in three years. You find a tenant/buyer who leases the property from you with an option to buy in two years. When the tenant/buyer is ready to close, you exercise your option, buy the property and sell it to the tenant/buyer.
There are, of course, possible variations. You can use different time frames. You can assign your option to the tenant/buyer or to another investor. You can buy the property instead of leasing it, and then sell it with a lease option arrangement instead of putting a traditional tenant in the house.
“Tenant/buyers are much more attractive than traditional renters,” says Van Horn. “You can set up your lease so that the tenant/buyer takes care of a lot of the routine maintenance. Also, because tenants/buyers expect to eventually own the property, they are much more likely to take good care of it and make their payments on time.”
Van Horn recommends focusing your lease option investing efforts on desirable neighborhoods—generally, working-, middle-, and upper-income areas. These are the areas where potential tenants/buyers want to own homes. Also, remember that lease options can work on multi-unit buildings as well as single-family homes.
“If someone wants to get rid of a small apartment building and is having trouble finding a buyer, he may be willing to lease option it to you,” Van Horn says. “You get into the property for a smaller-than-normal down payment and you benefit from the cash flow while you’re working on the financing over a year or two or more.”
Laws regarding real estate options vary by state and it’s a good idea to check with a real estate attorney in your state to be sure are in full compliance with all applicable regulations when you put together a lease option transaction.
Jordan Taylor is the editor of Millionaire Mentor™ Newsletter, which is published by Whitney Education Group, Inc.™
To receive our free newsletter, contact us here.
Subscribe our YouTube Channel for more updates.
Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com. GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.
Alan L. Olsen, CPA, Wikipedia Bio
GROCO.com is a proud sponsor of The American Dreams Show.
The American Dreams show was the brainchild of Alan Olsen, CPA, MBA. It was originally created to fill a specific need; often inexperienced entrepreneurs lacked basic information about raising capital and how to successfully start a business.
Alan sincerely wanted to respond to the many requests from aspiring entrepreneurs asking for the information and introductions they needed. But he had to find a way to help in which his venture capital clients and friends would not mind.
The American Dreams show became the solution, first as a radio show and now with YouTube videos as well. Always respectful of interview guest’s time, he’s able to give access to individuals information and inspiration previously inaccessible to the first-time entrepreneurs who need it most.
They can listen to venture capitalists and successful business people explain first-hand, how they got to where they are, how to start a company, how to overcome challenges, how they see the future evolving, opportunities, work-life balance and so much more..
American Dreams discusses many topics from some of the world’s most successful individuals about their secrets to life’s success. Topics from guest have included:
Creating purpose in life / Building a foundation for their life / Solving problems / Finding fulfillment through philanthropy and service / Becoming self-reliant / Enhancing effective leadership / Balancing family and work…
MyPaths.com (Also sponsored by GROCO) provides free access to content and world-class entrepreneurs, influencers and thought leaders’ personal success stories. To help you find your path in life to true, sustainable success & happiness. It’s mission statement:
In an increasingly complex and difficult world, we hope to help you find your personal path in life and build a strong foundation by learning how others found success and happiness. True and sustainable success and happiness are different for each one of us but possible, often despite significant challenges.
Our mission at MyPaths.com is to provide resources and firsthand accounts of how others found their paths in life, so you can do the same.
Mo Lidsky
Mo Lidsky: The Refugee Boy that Grew Up to Empower Families for the Future A Journey Rooted in Resilience Mo Lidsky’s story begins in Ukraine, where he was born and raised. In his early juvenile years, he immigrated to the United States with his family, and this transition was challenging. As refugees leaving Eastern Europe,…
5 Powerful ESG, Business, and Investing Trends
Key ESG, Business, and Investing Trends. What does the future hold for businesses navigating the complexities of sustainability and finance? A recent American Dreams Show interview by Host, Alan Olsen, of Michael Meehan, titled “The Future of ESG and Impact Investing with Michael Meehan“, addressed 5 powerful ESG, business, and investing trends. Michael, Co-founder of…
The Power of Design Packaging: 4 Steps Make Successful Entrepreneurs
What is design packaging, how can it help entrepreneurs be successful, and where to learn more about it? In a world where first impressions are everything, the art of design packaging has emerged as a critical factor in setting businesses apart. Few understand this more profoundly than Randi Brill, Chief Creative Officer of JUST CALL…
Brian King – The Market for Alternative Investments
Brian King – Alternative Investments Unlocking liquidity in illiquid assets: How Brian King’s LODAS Markets is revolutionizing alternative investments. Introduction What if you could turn traditionally illiquid assets into liquid ones, opening up a world of new investment opportunities? Brian King, a seasoned veteran of the stock exchange industry, is making this a reality. Through…