So, I talk about lease options deals ALL the time… on my podcasts, in these here emails, everywhere. I’ve gone into great detail about the various aspects of these deals, too.
I just love ‘em! It’s my favorite strategy.
A big reason is because you can control a property without owning it.
I get asked about lease options all the time.
So, I want to quickly walk you through an example lease option deal, focusing this time on the numbers…
Let’s say there’s a house worth $200k. The seller has it listed for rent on Zillow. I send them a letter, and they call me… we agree on a lease option.
They like the idea of me taking over the property. They don’t have to worry about anything.
To the numbers…
$200,000 x .85 = $170k is my offer.
And I explain to the seller how that offer will be the same amount they could get going the Realtor route… it’s not going to sell for list price, plus there’s Realtor commissions, carrying costs, closing costs, fixing a few things—it all adds up.
That’s how I show them that I’m going to get them the same equity.
So, the seller owes $185k. I make my offer with a 5-year lease option. In 5 years, they’ll only owe closer to $170k through amortization. That’s why this works.
And, I need at least 25% of the rent for cash flow.
I offer 75% of market rents. So, if that’s $1,800, I’d offer the seller $1,400/mo. in rent, giving me $400 in cash flow.
I’d used an escrow company to collect the rent and pay the mortgage.
Let’s say the seller wants $1,600/mo. Well, $1,400 might work for their peace of mind, knowing I’m taking care of vacancies, repairs and maintenance. So I can remind them of that.
If the seller still isn’t keen on that, it’s okay. I just renegotiate either the price or the terms. Maybe I come up to $175k or up to 7 years. Heck, you can even negotiate a rent credit that you’d get at the end of the terms at closing.
So, that kind of lease option is a sandwich.
But, we can also do a lease option assignment…
I’d sell my contract to a tenant-buyer for a fee of 3%. (1. Remember, typical agent fees are 6%, mine is less. 2. And, this is when I disclose that I also happen to be a Realtor, legally, I have to.)
So, I give them a contract for their asking price of $200k with monthly rent of $1,800, then sell that contract to the tenant-buyer and I’m out of the deal.
Both ways are great and there’s a time and a place for each.
See, here’s why lease options are so great…
They are a winner for the seller—who was unable to sell the property the conventional way… and for the buyer—who may have damaged credit and can’t get regular financing.
And, it’s a winner for the investor because it provides cash upfront, ongoing cash flow from the tenant, and cash on the backend when the property is actually sold.
A real win-win-win deal.
