Lease Options 101 Edward O Daniel
Agenda Introduction to lease options Sandwich lease options Learn multiple ways to profit in the deal Handling the paperwork involved
Scenarios Property owner selling on lease option Investor use of lease options
What are lease options In a lease option, a property owner and tenant agree that, at the end of a specified rental period for a given property, the tenant has the option of purchasing the property This transaction requires two separate agreements. A lease and option agreement.
Intro to lease options The lease agreement allows the tenant to live in the property The option agreement give the tenant the right to purchase the property at a future date at an agreed upon price
Difference Lease option means tenant has the right to purchase the property within certain time period for agreed upon price but is not required to do so Lease purchase means tenant is required to purchase the property within certain time period. Instead of option agreement you have purchase agreement
How it works Advertise property as lease with option or rent to own Same process as finding a renter except you also collect option fee Important lease clauses to remember Option Fee should be 3-5 % of purchase price and is non-refundable if tenant does not purchase
How it works Depending on how bad tenant s credit is you may have to lease to them from 12-24 months. I would not recommend going beyond 24 month at an absolute maximum. You are ultimately looking to get them qualified for a mortgage ASAP. While they are leasing from you they should also be paying for a credit repair company to fix tenants credit score.
Benefits to lease options Sell the property for retail value Pay no real estate agent commissions Can sell it in AS-IS condition. Sweat equity * Price vs Terms
Investor Scenario As a real estate investor doing the following type of transaction you need to be very ethical and have integrity when dealing with the seller. Do your due diligence regarding the loan and make sure its current and they have been paying on time.
Sandwich lease options In this technique a real estate investor does two lease options in combination with each other. The investor does a lease option with a seller and then finds a tenant buyer and does another lease option with the buyer. Lets see an example
Sandwich lease options Investor gets lease option for house at $600 month rent for 36 months and purchase price of $70,000 from the seller with $1,000 option fee. The investor finds a tenant buyer at $900 month rent for 12 months and purchase price of $95,000 with option fee of $5,000.
Multiple ways to profit Difference on the monthly rent between what you collect each month and what you pay to seller Option fee you collect from the tenant buyer in the beginning Backend amount when tenant buys house. The difference between what your option price is and the option price you are selling it for.
When to use lease options Only when you can get the property with equity in it and the seller is not in financial trouble. When the seller is wiling to do a lease to own program. Seller may not need/want the cash right now. Why not wholesale it? Why not rehab it?
Where to find these deals Call craigslist ads for rentals Burned out landlords People who have two homes. Explain. Leads that you get from your own marketing
Exit strategy The exit strategy for lease options are to find a tenant buyer Can advertise online like craigslist or/and can put it on the MLS. Can offer the property as lease or for sale.
Handling the paperwork Lease agreement Option agreement
Lease agreement Should have a cross default clause in it. Meaning if tenant defaults on the lease they also default on the option agreement. I also make it a clause that the tenant is responsible for ALL repairs to the home. I highly recommend you include a home warranty when doing this type of transaction.
Option Agreement Must have a time limit as to when the option expires. Has the fee they are paying up front to buy the option and that it is non-refundable. May include an extension provision. For a fee.
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