One of the million and one ways to profit in real estate with no money or credit is acquiring property through what is known as a lease option or lease purchase. Other names generally utilized to describe this practice are, rent to own and lease with an option to buy. Whatever you refer to it by; lease options are a great approach in the world of creative real estate investing.
You can attain homes regardless of how much equity is in the property and still make a pretty substantial income. A few of these down your pipeline, and depending on where you need to be financially, you can pretty much quit the rat race for good.
9 times out of 10 you are dealing with a highly motivated seller that wants a commitment or at least a semi-commitment on when their house will sell. They do not want to have it sit on the market indefinitely waiting to see if and when it will sell and if so, for how much. In a lease option you structure your deal in advance. You commit to a monthly lease payment, as well as a final purchase price and the length of the agreement.
You can assign your agreements to investors for an assignment fee and have them take over at anytime you both agree upon during the term of the contract, or you can choose another option. There are many options that one can utilize when they have this agreement in place. The most popular method used is referred to as a “sandwich lease”.
In a sandwich lease you would contract a property with a seller and outline the price, payments and length of contract. You would then seek out an end-buyer. This is someone who is willing to do a lease purchase on the home. Once you have found someone ready to move forward you would enter into a lease purchase agreement with them, which has the possibility to yield high profits in the end.
How do you get paid, you ask? Simple!!! What you have contracted with your seller is totally different then what you have contracted with your buyer. Say for instance, you are required to pay $1,000 a month in rent to your seller; your end-buyer may be obligated to pay you $1,500 per month. That gives you an easy $500 a month in positive cash flow.
Let’s also say that you have locked in a purchase price of $300,000 with the seller of the property, but have contracted the end-buyer at $350,000. At closing you are receiving $50,000+ paid out to you! In addition, you will want to request what is known as a non-refundable option consideration fee prior to going under contract with your end-buyer. Candidates for rent to own homes generally have a good penny to put down towards a home they could no other way have qualified for. Depending on the area, quality of home, and price, many people can put down anywhere from 3-20% of the asking price upfront. None of this refundable and can get immediately added to the “HIP National Bank” (your pockets)!
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