Whether you are a seller, buyer, or investor, the fastest and easiest way to complete a real estate transaction is by buying real estate with lease options. Because these transactions are a win-win, they tend to not be adversarial like most real estate negotiations are. The seller has a buyer or tenant with a vested interest in the property, which means they are motivated to keep the property in good state and make sure their payments are current. Buying real estate with lease options is a fair bargain for everyone involved.
Sandwich lease option
When there is an investor involved, buying real estate that has a sandwich lease option is often the preferred method. With investor and seller entering the option, the contract clause actually allows assigning the agreement to a third party or entering into a completely separate third-party agreement. This way, investors can control more property while investing less money.
The seller starts collecting rent without ever becoming a landlord, and you, as an investor, find the end buyer and then collect a little more rent than you are paying to the original seller. The end buyer now has a home without the hassle of qualifying for a mortgage.
As the investor, you goal is to work with the buyer/tenant to remove any roadblocks temporarily preventing them from completing the purchase. Doing this reduces the cost of an option fee, and when the house goes into closing, you collect a large profit.
Benefits for investors
There are many benefits in lease options. While we can’t cover it all here, let’s look at the top benefits for investors.
- Large non-refundable option deposit
- Top sales price from the end buyer
- Few or no commissions and fees
- Minimum risk because you’re not the actual owner
- Buyer is responsible for maintenance
- Positive cash flow
- Profit when the home sells
- Large list of possible end buyers
You are offering a huge value to the buyer when you have an attractive financing plan. This means you have the ability to ask for a higher selling price, even when the market is slow. Any reasonable tenant easily understands the idea of trading price for time and value.
Once the lease option is in place with the end buyer, don’t just sit there waiting for them to pull the trigger on the final purchase. You are still in the game as an investor, so stay in touch and help them resolve any credit issues so they can get a mortgage. To make this work, the option period with the seller must be longer than the option period with your end buyer. You only need to check in with them monthly to verify that they are following the plan that was put into place.
[Featured image credit: woodleywonderworks / Flickr, used under BY 2.0, image cropped]