Thread: Lease-Option Deals

I understand the principle of a lease-option deal, but just finished a book that suggested using a lease-option on both sides of the transaction. In other words, lease a home (no money down) with an option to buy, then find a tenant to lease it with an option to buy (at a higher rent and price), who gives you a big option fee up front. Have any of you had experience with these, and with what results?

The authors use examples where they put no money down, then collect $8,000 to 15,000 as a non-refundable option fee (applied towards the purchase price, of course). It seems it would be difficult to find sellers that will lease to you for years while letting you sub-let it, and really tough to find buyers with money for large option fees that wouldn't just go out and buy a home. Any success stories here using this method?

Steve

I've never tried it... nor have ANY of my clients over the last 11+ years.

I accually purchased my house a year ago after a 1 year lease option. Generally if the market is going up they are great for the buyer. For instance, houses are going up at about 20% a year in my area. I buy the home on a lease option. LEase it out and i can buy it at the previous years price. Personally in this market i see NO reason for a Seller to want to do this. Even if he is a couple hundred dollars into positive cashflow the numbers still dont work. The idea of subleting it is interesting but you would have to find something underpriced so you could release for positive. Would be tricky but possible. Its like everything else. If you can buy it (lease it) for under market value, then re sale (sublet) it for market value you can make money.

You must be speaking of the infamous -onti & -inkle books. I just finished reading one too and have been driving around my neighborhood looking for dead lawns (signs of owner neglect) and for rent signs. I was thinking it could happen if I go out and proposition enough people (which I won't), but the sliding market is really killing the whole option to buy deal.
So, that goes back to my own plan; find a local licensed handy man (because he will know of distressed properties) and create some lead/rehab/profit sharing deal with him. What do you guys think of that one?

Generally speaking lease/options are not as good as they once where. The lease/option strategy typically works best for selling to buyers that couldn't qualify today for a house, but with a little time/track record and a little credit cleaning, they would be ready to go. Problem is now that just about anyone that has a pulse can buy a house. It is not just the low interest rates that has fueled this phenomenon but also the secondary market that has put together products to be able to loan to "riskier" customers.

So if you are looking at lease/options for an opportunity to generate income or cash flow, then it is very difficult today and comes with tremendous risks.

However lease options can be a good way to acquire real estate with nominal transaction costs and money out of pocket, so for the long term investor that will approach them as rentals, it can be a good strategy.

Also note that it can be done to generate a living, but that it is not the pie in the sky as advertised.

thanks
Scott

I have found lease options useful for buying property, but have only encountered problems when lease optioning to someone else - there are many pitfalls, especially if your state laws determine the tenant is granted an equity interest in the property...

However I am not sure the scenario you you are talking about is actually legal??! How can you sell or give an option on a home that you don't actually own - could be big problems if you can't close and you have taken the tenants money!!!!

I have found most people trying to buy on a lease option from me have never been able to follow through - which is nice if you have a big non refundable option fee and can still sell the property for a lot more money.

You also have to consider you are tying up the property and cannot sell it to someone else in an emergency!

rent it out & sell it later...

I found your post insightful and helpful. My Brain fried from reading too many get rich books, so I'm working on my ears by listening to real wealth network radio shows.

Yeah I love all those motivational get rich books & tapes, guess that's what got me into this all in the 1st place.

You just have to remember that all the authors are now just making their money from selling you/ us the books and not from whatever the book is actually about?!

Talk to some real people who are in the street doing it every day and know what really works right now.

Maybe we should print some of these threads and sell 'em...Any publishers in the forum? (just kidding)

In texas that could get you in trouble. i am pretty sure

bottom line, if you don't try and do it, it will never work. if you try it, and give it a fair shot - learning about it and really implementing a sound investment strategy - you'll find that most of the time, no matter what it is, you can do it and do it well.

will there be problems, YES. but overall, typing on forums and thinking it over and over and over will not get you where you want to be - investing.

note - most real estate agents are NOT investors. they do not understand INVESTING. they understand - especially just sales agents (not brokers) - selling houses to home buyers.