Control Without Ownership Using Lease Options

If you want to make more money and at the same time, invest less of your own money, you need to learn how to take control without ownership using lease options. There are many variations to taking control without ownership using lease options. The two methods I prefer the most are sandwich lease options and wholesaling flipping lease options.

Sandwich lease options are designed to maximize your profits by taking long term control without ownership using lease options.

The wholesale lease option typically doesn’t allow for as much profit because you put a lease option deal in place and then flip it to another investor that wants to hold it for the long term profits. With wholesale lease options, you have to leave some meat on the bone to attract wholesale buyers.

In both situations, you will be best off when you have an end buyer in place before you enter into a lease option with the seller. That’s not always possible so your fall back strategy should be developing a list of potential end buyers. Remember, you make your money when you first invest. It’s vitally important having an exit strategy.

How Taking Control Without Ownership Using Lease Options Should Work

It’s all in the way you write the contract with the seller or current owner of the property. What you are looking for is a win-win-win contract. One that enables the seller to start generating cash from the property to make the mortgage payments and/or positive cash flow. You make some money in the middle. You leave some profit for the person you bring into the deal at the end such as a wholesaler buyer that holds the property for long term profits. Or a retail buyer that wants to start building equity today but needs a little time before he or she can qualify for financing.

Something to keep in mind is that the seller and end buyer probably don’t understand how a lease option can work or the many variables that can go into a lease option contract. If you are flipping to a wholesaler, that person likely has at least a passing knowledge of lease options and probably a working knowledge. Helping others understand the process means one of your key roles is being able to fully explain it to them. That’s why I offer several courses that give you the detailed knowledge to confidently move into this role. You will find a list of these courses at https://wendypatton.com/products.

Nuts and Bolts of How to Take Control Without Ownership Using Lease Options

Let’s say you find Sam the seller and he is opened minded to allowing you to take control without ownership using the lease option as long as his mortgage payment is covered and maybe he has a little positive cash flow into his bank account each month. The first thing you need to do is make sure you have a thorough understanding of the local market that the home is located in. Here are some sample terms that you could negotiate:

Down payment: $1,700 (first month’s rent plus $1,000 option payment)

Rent: $700 per month

Term: 2 year

Sales price: $75,000

Your total out of pocket expense is $1,700 to take control without ownership using lease options. Better yet, you will quickly recover those expenses when you put an end buyer in place. Your next step is bringing in Bill the buyer who you have prequalified and he is excited about the opportunity to take control of the house through a sandwich lease until he can qualify to purchase within 18 months by taking out a mortgage. You need that 6 month cushion between your deal with the seller and your deal with the buyer so that you are still in control when the buyer makes the purchase. That is when the bulk of your profit is made. Your contract with the buyer might look something like:

Down payment: $3,800 (first month’s rent plus $3,000 option payment)

Rent: $800 per month

Term: 18 months

Sales price: $89,000

You immediately recover your out of pocket expenses and make a small profit from the higher option payment and the slightly higher rent. You will also have a small but positive monthly cash flow from the deal that comes from the difference you are paying in rent and what you are collecting from the end buyer. Your biggest pay off comes from the difference you pay in the purchase price and what the end buyer pays when he finalizes the purchase.

Circumstances will change the final profit you make but in the arrangement above you should expect a total profit from the deal to be about $17,000. By taking control without ownership using lease options and putting one of these deals in place each month, you soon have a hefty double-digit income every month as more and more of these deals close.

By Wendy Patton

For more than 30 years, I’ve used the Sandwich Lease Option System to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It’s because of that fact and my personal success that I share the Sandwich Lease Option System with others.

If you found this information useful, please visit again soon at wendypatton.com.

For more exclusive content, please subscribe to my RSS Feed and YouTube Channel.

What did you think of this article? Please leave a comment below.

Lease Option Coaching FAQ

One pleasure I have is answering specific lease option coaching FAQ for my students. Now, I’m sharing with everyone so that you get a glimpse of what is available in my lease option coaching program.

These lease option coaching FAQ are specific to wholesale deals. This is a situation where the lease option investor is wholesaling to a rehabber.

——–

Wendy,

I appreciate your prompt and detailed responses to questions. This is the question I have on my mind now:

Q# 1. I bought a fixer for $105,000 and found a rehabber that is interested at $142,000. The rehabber knows what I paid and wants me to come down in price but I really think it is worth the $142,000 that caught his attention. I don’t want him to feel cheated but this is how I make my living. What do you think I should do?

A# 1. Never feel guilty when you are making a ton of money if your investor wants to buy a home from you – even if you make more then he or she does. Rehabbers know their numbers. Let them decide what works. If $142,000 works for them, – TAKE IT! You deserve it – because you found the good deal in the first place.

Q #2. I haven’t closed on the deal yet but have closing scheduled for this Thursday. I do have a written and signed purchase offer. Any concern that my buyer is aware of the deal I have and will try to move in on it?

A# 2. There shouldn’t be as long as you have a signed agreement. Of course, every contract can be written differently. Look your contract over closely to make sure there aren’t any escape clauses for the seller such as being able to accept a higher offer.

Q# 3. I had an inspection performed that turned up a few minor issues but nothing that I consider serious when the house is going to be remodeled. Do I need to turn over the inspection report to the rehabber?

A# 3. That depends on state law. In most states, you do have to disclose major deficiencies. However, it’s also the responsibility of your end-buyer to have his own inspection done for his own satisfaction. The one thing about wholesaling to rehabbers is that it is a small community of investors. Assuming you want to sell to him again in the future, it’s not a good idea to hand him a bunch of undisclosed problems that you were aware of.

Q# 4. The house is over filled with stuff. Literally, the house is used like a storage unit and stacked top to bottom with everything imaginable. The inspector that went through the house didn’t say anything but it seems to me that it made a thorough inspect difficult. If the rehab buyer wants another inspection, whose responsibility will it be to clean the house out?

A# 4. I’d start with the original seller. If you don’t have a clause requiring the house to be cleaned out, try adding it before closing. Also, look at the contract you have with your wholesale buyer. Is there a clause requiring the house be cleaned out? You might be responsible or it might be a point that needs further negotiation.

Q# 5. What if the homeowner tells me that he “needs” $5k upfront in order to even begin moving? What should I do in that scenario?

A #5. I would put it with a title company anyway to protect yourself (you’ll at least have a lien on the house). Make it your lease option fee and part of the purchase. BUT don’t pay it until the owner has completed any changes or cleaned out the house or finished any other clauses in the contract.

Sometimes, I try to be a little light hearted with lease option coaching FAQ but still provide valid answers.

Q #6. Is “consideration” the same as “earnest money deposit”, for some reason I was thinking they were different? If they’re the same, I wouldn’t mind doing a promissory note. I have no idea how the promissory note should read.

A#6. Yes and no. An earnest money deposit is definitely consideration, BUT consideration can also be other things of value. It can be a promissory note, a car, silver, etc. (heck, in Michigan it can be “love and affection” – don’t ask me to explain that one, nor have I used that one yet. 🙂

Q# 7. If the homeowner needs up to 90 days to move out – would we (myself and the rehabber) close on the house the day the investor accepts the assignment contract? Or do we not close until the homeowner totally vacates the property?  Truthfully, if I was the rehabber, I wouldn’t want the finance clock to start early if I can’t gain access to the property until day 91 – especially if they’re using “hard money”, right?

A #7. It depends on the contract – sometimes the seller gets what we call “occupancy” and can stay in the home. I would prefer them to be out the day it closes but that is up to the seller and you to negotiate. If they do stay there – then you will want some type of “occupancy charge” – which is a daily rate for the seller to stay there. Typically, it’s withheld at closing from the seller’s proceeds.

I do refer to these as lease option coaching FAQ but every deal is unique. That is why I offer one-on-one coaching sessions as well as regular group telephone calls and webinars. Everyone benefits from the group meetings and individuals get specific questions answered.

By Wendy Patton

For more than 30 years, I’ve used the Sandwich Lease Option System to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It’s because of that fact and my personal success that I share the Sandwich Lease Option System with others.

If you found this information useful, please visit again soon at wendypatton.com.

For more exclusive content, please subscribe to my RSS Feed and YouTube Channel.

What did you think of this article? Please leave a comment below.

a Lease Option

As most readers already know, I favor lease options but land contracts are an alterative way to sell real estate for a high profit. There is a difference between a land contract and a lease option but there are also similarities. What is most common between the two is these can both be used as relatively short term ways to sell a property.

Contracts Define the Difference Between a Land Contract and a Lease Option

The major difference between a land contract and a lease option is the buyer’s ability to build equity in the property. Real estate contracts can be written in almost any way that a seller and buyer agree to. There are state laws that need to be adhered to but many options exist for the contract.

What is similar between the two contracts is that both typically involve a balloon payment within two and four years. With a land contract, the buyer is building equity during those years. With a lease option, the tenant has an exclusive right to buy the property during the contract period but doesn’t usually build equity. With a land contract, the property title isn’t transferred until the purchase is completed (typically the buyer eventually takes out a mortgage). If things don’t go according to plan, the land contract becomes more complicated because the buyer has equity in the property. A lease option is simpler because if things don’t go according to plan, the contract expires and both parties walk away.

In both cases, it’s usually necessary for the buyer to improve his or her credit rating. For that reason, the seller (investor) needs to anticipate that things might not go as planned. The biggest difference between a land contract and lease option is how easy it is to get a failed tenant out of the home. With a land contract, you’ll be dealing with the equity issue that will vary from state to state. A lease option doesn’t involve equity and is much easier to resolve.

Pros and Cons When It Comes to the Difference Between a Land Contract and a Lease Option

A big difference between a land contract and a lease option is what either the buyer or the seller is wanting. A land contract is a form of owner financing that can be very tempting to a buyer that doesn’t see an ability to obtain financing anytime soon. But depending on the amortization length, the seller won’t see most of the money for years to come. Most sellers will prefer a lease option because the full purchase price needs to be paid with a mortgage somewhere between 18 to 36 months depending how the contract is written.

The difference between a land contract and a lease option makes these contracts very different from a standard purchase agreement. As long as you follow the legal requirements in your state, these are still fully enforceable contracts. However, because they vary from the standard, it can take some work for an investor to find a seller that understands the difference between a land contract and a lease option.

I’m here to help you find sellers willing to enter into these types of contracts. Or, if you are considering selling your property directly to a buyer through a land contract or lease option, I am available to discuss your specific situation and help you determine the best available option.

By Wendy Patton

For more than 30 years, I’ve used the Sandwich Lease Option System to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It’s because of that fact and my personal success that I share the Sandwich Lease Option System with others.

If you found this information useful, please visit again soon at wendypatton.com.

For more exclusive content, please subscribe to my RSS Feed and YouTube Channel.

What did you think of this article? Please leave a comment below.