Most people who are even new investors. They are much familiar with the lease-to-own approach. It is also known as lease-purchase or rent-to-own approach. But many of the investors are not familiar with lease to own approach to real estate investing.
A Standard Lease-to-Own Arrangement
In case you are a new real estate investor who is not much familiar. The game is new for you. Or let’s suppose you are an investor and now you are at a point where no more improvement can occur to get new financing.Or maybe you are touching both edges. In both cases the solution could be for you is to own more property. So, that you can lease it out for cash flow. In this case the property you have to purchase is in current situation.
There are so many bargainers out there who are in hazard with their mortgages. This could be shameful. To get rid of this hazard you have to enter into a (lease-to-own) contract so you will be able to buy a property through lease purchase option. In this case you have to pay a non-refundable lease option fee. And then sign a 3 years lease. Sign the lease with the option to buy the property at the pre-negotiated price. At or before the end of the lease. Then you will have to pay a monthly lease amount. It gathers a down payment for the exercise of your option and the eventual purchase of the home.
The “Sandwich” Lease-Option Approach.
You might not know about it. It is also a slice of bread. But you are unaware of this part of bread. You must the know the part of the sandwich lease-option approach. It is time for you to know this slice of bread.
Do not think this is the approach which is keeping you away from finding a tenant. You can go outside and find a tenant who is in searching a home and wants to own a house. But he is having a cash or credit problem who is not allowing him to do so. He sees your home and wished to buy but could not do it. You here could tell him that he can buy.
You can use here this strategy. You can execute a three-year lease with a particular lease payment. He can check and revise his option to buy the home. At the end of that lease agreement at a particular price. You can solve his trouble and tell him that he has to purchase this lease-option. With an upfront non-refundable deposit on lease agreement. In this situation you can gain control of the home in up front. Here the only and essential trick is to find out the right home and negotiate deal on both ends.
What You’ll Need to Make It Work.
You will have to need a greater deposit from your tenant as compare to you paid to the original homeowner. For example, you have to pay to the owner a $1,000 non-refundable lease option deposit.So, your tenant will pay you $2,000.
You will have to need a higher lease payment from your tenant. We shall assume here that the owner needed to sell or he would lose his home. You can generally negotiate a lease payment. Which is equal to his mortgage payment and is often less than the going rate to lease a home.
You will urge a higher purchase price from your tenant. The original owner really wanted to sell. He came to point that a low price is better than a foreclosure. Here you can negotiate a price significantly higher with your tenant-buyer.
Now you are making your money from three ways. Let’s suppose that you cracked this deal and you are making $1,000 profit. Through lease-option profit. And more $4,000 per month from the tenant. We assume that selling price is $30,000 higher than the purchase price. And you are agreed on it with the original owner. Than the gross profit would be $36,000 when the house is purchased or sold. You can do your own research to work on it.