Control Without Ownership Using Lease Options

After well over 30 years as a real estate investor, I remain fully confident and convinced that control without ownership using lease options is the best strategy for all market conditions!  This is how you make more money while at the same time investing less of your own money and time.

What could be a more compelling real estate investment strategy than the Sandwich Lease Option System? You make a good profit up front and another even bigger profit when the end buyer closes the deal in a year or so. In-between, you have positive cash flow by charging a rent that is higher than your lease obligation to the seller. If for so some reason the deal falls apart in the end, you never did own it and it goes back to the seller. You didn’t even have full responsibility as a landlord while enjoying the high profits that come from real estate investing.

There are several 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.

Wholesaling – Control Without Ownership Using Lease Options

The wholesale lease option typically doesn’t allow for as much profit as when you control the entire deal 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.

Whether you set up a sandwich lease option or wholesale a lease option, you are 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 to have an exit strategy from the beginning.

Other versions are selling a home you already own using a lease option or ‘Get the Deed Subject To’. You should be familiar with all versions so you have the right one available for specific circumstances.

How Taking Control Without Ownership Using Lease Options Should Work

It’s all in the way you write the contract with the seller (current owner of the property). What you are looking for is a win-win-win contract. One enabling 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. Then, 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 (lease option fee) but needs a little time before he or she can qualify for financing.

Something to keep in mind is that the seller and retail 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 is one of your key roles. That’s why I offer several courses giving 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 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

Option Term: 2 years

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 prequalified, and he is excited about the opportunity of future ownership 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 fee)

Rent: $800 per month

Term: 18 months

Sales price: $89,000

Your Benefits From Learning How to Take Control Without Ownership Using Lease Options

You quickly recover your out of pocket expenses by making a decent profit from the higher option payment and the slightly higher rent (ongoing positive cash). 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 or more 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.

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Overcoming the Fear of Real Estate Investing

Investing of all types is based on a risk-reward analysis. For generations, those that are the most risk adverse have sought out government employment with the hope of having employment security and a guaranteed retirement pension (not so much anymore). Others are willing to take a little more risk trying to climb the corporate ladder. These people are also hoping for job security and a retirement pension (much less likely today) along with a little more reward. That works for many people but it leaves your work happiness and financial security at the mercy of a “boss”.

By overcoming the fear of real estate investing, you take full charge of your professional life, financial security, and ultimately your life! Still, there are more layers to the risk you need to take and the reward you’ll achieve. Many beginners keep their day job until feeling confident they will succeed as a real estate investor.

Or you can try other investments such as Wall Street, gold, or a simple savings account but you’ll still be at the mercy of others. On Wall Street, Greed is Good – yeah for inside traders and those able to manipulate the markets. Gold is the world currency and subject to global fluctuations. Savings accounts – forget it – these don’t even keep up with inflation.

Overcome Fears of Investing in Real Estate With Education

One proven and repeatable path to success and overcoming the fear of real estate investing that I’ve often seen starts by learning about the subject. That is exactly the reason that I write about and teach the subject. One of the great things about real estate investing is the property often pays for itself. Typically, you put a little of your own money in, finance the property using other peoples’ money, and either the rent or the rehab pays for the investment plus a good profit. Plus you own the appreciation in value.

Occasionally, I come across people that can’t overcome the fear of investing in real estate because it comes down to other people in their lives. These are people that fear others will see them as a failure if a deal goes bad. Again, this is mostly about gaining some education from an experienced investor. That knowledge and oversight will almost certainly enable you to avoid making an investing mistake.

If you do want to invest but are having trouble overcoming the fear, my suggestion is that you sit down with your spouse to have an open conversation. Not necessarily about your fear but rather about the financial opportunities that investing offers. Also, about what you and he/she think the best opportunities are today. There are plenty of them. Then further educate yourself to help overcome the fear of real estate investing.

Understanding the Numbers is Another Way of Overcoming the Fear of Real Estate Investing

Clearly, the goal of real estate investing is earning a substantial profit. Overcoming the fear of real estate investing means knowing the numbers before investing. Begin by obtaining at least 12 months of expenses from the current owner. But don’t take these at face value. Study them yourself to make sure the numbers make sense. If this is income property for the current owner, you can ask to see the IRS income tax paperwork, which is where the most accurate expenses are going to be shown because the owner was able to right them off from income. This is likely to be the most precise financial history of the property.

Once you are comfortable with the current owner’s numbers, overcoming the fear of real estate investing means plugging in your own numbers. Obviously, you are seeking to make a profit so make sure you accurately include all of your numbers. The previous owner’s numbers do not fully apply to your situation. Your loan amount, interest rate, and other factors will differ from the current owner. It’s essential you run all of the numbers using your own circumstances. That should give you confidence before investing.

Next (or first), take a close look at the local market you are buying into. Are the rental rates and purchase price reasonable compared to other properties in the local market? If you’re getting into the rental business, make sure you understand the local vacancy rate. At some point, you will almost certainly have a vacancy. You want to establish a reserve fund from your monthly cash flow to cover temporary vacancies and emergency repairs.

Understanding all of the numbers will go a long way in overcoming the fear of real estate investing but there is more you can do.

Overcoming the Fear of Real Estate Investing by Getting Expert Advice

If you are a novice, a lack of experience is a big hurdle to overcoming the fear of real estate investing. The good news is there are a lot of resources out there to help you. I personally have published multiple books and videos to help people get started in real estate. I also offer courses as well as personal mentoring through my inner circle. Another easily available resource is a local real estate agent that can help you understand the local market.

Overcoming the fear of real estate investing involves you putting together a plan, attending seminars, and using knowledge from other resources. Then have an expert or two review your plan and make suggestions. Next, find a few potential investment properties. Using your knowledge and plan, run the numbers for each property and have an expert look at what you came up with. There isn’t much more to overcoming the fear of real estate investing.

By Wendy Patton

For more than 30 years, I’ve used the Sandwich Lease Options 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

It’s always my pleasure to answer student questions about lease options. I do this via multiple venues. Sometimes it’s a direct response about specifics to a deal a student is currently working on. At other times, the lease option coaching FAQ is more general to appeal to a larger audience. Another highly informational setting is my monthly Inner Circle Live Q&A calls. At other times, it is for a webinar.

Here, I provide answers to questions that frequently come up on the subject. When it comes to lease option coaching FAQ the sellers and end buyers have different concerns. You, as the principle (investor) in the deal not only have your own questions but also need to be able to answer the questions for your sellers and buyers. The FAQ that follow should be of interest to everyone (investors, sellers, and buyers) but don’t hesitate to submit your own lease option coaching FAQ.

To your Success,

Wendy

Generally, both seller and buyer FAQ are pertinent to lease option investors either as the owner, buyer, or strictly as an investor in sandwich lease options.

Lease Option FAQ for Sellers

Q: Why would I choose to do a lease option instead of outright selling the house for cash?

A: That depends on your circumstances. However, there are many advantages for the seller in a lease option. First, it can be difficult to find a qualified buyer in today’s market. It can be even more difficult to find a buyer willing to pay your asking price. The lease option allows you to sell at an above market price and brings in many more potential buyers.

Q: The lease option seems like a complicated process. Where do I start?

A: Start by deciding the terms you want to offer the buyer. Decide how long you want the purchase option to be available. Most common is a 1 or 2 year purchase offer. Then decide how much to charge for a nonrefundable purchase option fee. Typically, it’s between 1% and 5% of the purchase price. Check your local market to see if a standard exists. You also want to begin considering what maintenance responsibilities you want the tenant to assume that go beyond a traditional lease.

Q: What’s the next step in a lease option?

A: As the seller, you have several options to consider. Even before you have a buyer interested in the lease option, you should create a draft of the purchase option agreement. You want a win-win agreement, which means the buyer will have some say in the final contract. However, a draft will go a long way towards helping the buyer understand how the process works. I always recommend that you have a real estate attorney knowledgeable in lease options review your contracts. This is particularly important with your first several deals and after any change in regulations.

Additionally, for investors, I encourage you to take full advantage of these lease option coaching FAQ as well as the additional resources I’ve included at the end of this article.

Lease Option FAQ for Buyers

Q: Finding a lease option purchase home seems difficult, where do I start?

A: Finding a lease option purchase starts with a search for available houses. Begin your search by asking a real estate agent to search the MLS. Also, look at your local craigslist and other local periodicals with a real estate section. You can also find any house for sale to make a lease option purchase offer.

Q: When deciding to accept a lease option purchase agreement, how do I know if I’m getting a fair deal?

A: You should always have a real estate attorney review any contract before signing. Just as importantly, you can counter offer any lease option purchase agreement to include terms that you prefer. The lease option purchase agreement is a very flexible contract that can be written to suit both the buyer and the seller.

Q: What is my biggest risk?

A: Qualifying for a loan to complete the purchase is the biggest difficulty most people face with a lease purchase agreement. Carefully consider if it’s reasonably possible for you to fix your credit rating within the option time period. If not, ask for more time. Also, a lease option agreement can include a provision to automatically extend the option period if agreed credit improvement is being made. Credit counseling is another option.

These lease option coaching FAQ demonstrate this strategy offers many possibilities for investors, buyers, and sellers willing to think outside the box. These are only a few of the many possible questions you may have. To learn more, you’ll want to read this other useful information that I offer to you free. Please take advantage of it today.

 

 

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.

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