OfflineArticles everywhere are very clear about the many market factors that are coming together to reduce the ability of millions to buy a home. Fewer buyers obviously mean more renters. However, not all of them want to be renters. It’s just as clear that the majority of Americans still believe that home ownership is best for them. This is true, even if they don’t think now is the time, or they are locked out of the market for credit score or down payment shortage reasons.
The lease-purchase, or rent-to-own strategy is becoming more commonplace, as today’s markets are creating situations that make this technique the only way some people, and investors, can purchase a home. Of course, going down that road requires some equity in the home, or at least it can’t be under water. That rules out a lot of the current home inventory, but there are a great many homes that are candidates for a lease-purchase.
The homeowner or investor who wants to buy:
If the numbers work, but new financing and a large down payment aren’t available, the seller can lease the home to the buyer with an option to buy after a certain amount of time. The tenant-buyer moves in and pays a lease payment to the owner that covers their mortgage, and may pay a little over for cash flow. The tenant-buyer has the option to purchase, but not the obligation. They do however pay an up-front non-refundable deposit for the option.
The homeowner or investor who wants to sell:
It’s the same setup, but you’re on the other side. If you’ve been unable to sell the home, someone who would like to buy it but doesn’t have the down payment and/or needs to work on their credit can move in with a lease-purchase.
The investor and the sandwich lease:
You’re an investor who finds a distressed seller with equity. You sign a lease-purchase to pay them their payment as rent. You also pay that up-front option fee. You have a tenant buyer waiting, and they sign a lease-purchase with you, pay their up-front fee that covers the one you paid, maybe more, and they pay a lease payment higher than the one you’re paying. You are now collecting positive cash flow. Also, you should have negotiated purchase prices on both ends that assure you a profit if options to buy are exercised.
Thanks Dg admin team. This is exactly what I needed to hear.
Josh
"The best is yet to come."
"Never let someones opinion become your reality"
but please understand that all properties do not make good candidates for a L/O in this environment. (as property values are still going down) But it is the most cost effective manner to become a REI. In fact, L/O has been a major focus for me for the last 3 years.
Always Looking to Acquire Houses | Always Looking to Amaze Investors
I'm looking at using lease option as a strategy in Detroit. Bill, what factors of potential property make for good and/ or bad candidates?
This strategy has been curtailed somewhat in Texas.