Lease Options were one of the first strategies that I utilized when I was first getti
ng started in real estate. Some of you are familiar with my story of working at a grocery store, where I was making about $3.90 an hour while putting myself through community college. I did not have an extra penny to spare. My credit cards were maxed out from buying lunch at McDonalds between breaks at school, and I didn’t have any extra cash. And this is why I’m really sensitive to those of you who are getting started in this business. For some of you, cash is really tight right now and lease options may very well be the thing for you because you don’t have to have cash or credit if you negotiate them properly.
Why Buy With a Lease Option?
First of all, a lease entitles you possession, which allows you to make cash flow.
Also, through the apprecia on, an op on gives you the right to buy at a set price which allows you to benefit from future appreciation.
Now for those of you that came through the recessionary period or just in the last year or so you’ve seen challenges to your credit rating. Maybe you had to short sell a house. Maybe you charged on some credits cards. Maybe you had a car repossessed. If, for whatever reason, your credit is challenged, it doesn’t mean that you can’t live in a nice home simply because you can’t qualify for it.
Lease options are great opportunities for you to go out and get good quality housing at an affordable price, and establish a set purchase so that even though the market may escalate, you can still buy it for that set price. It’s a great strategy if you are credit challenged and looking for new housing.
Why Sell With a Lease Option?
We know why we would buy with a lease option, but why would anybody sell utilizing this strategy?
When you sell with a lease op on you experience the best parts of having a renter. You get the monthly streams of cash flow, the tax benefits because you maintain ownership of the property, the loan is amortized on your end so you are buying down the principal of your loan (the longer you have a tenant there, the lower your mortgage principal balance is going to be reduced), and you’re building equity through the principal buy down. You get all of this without having to deal with the headaches and hassles of traditional renters.
When you give people a portion of their monthly payment to buy down their purchase price, you are giving what’s called equitable interest in title. I want to caution you from doing that because it will prohibit you from being able to exit the property cleanly.