Buying real estate with lease options continues to be a solid real estate investment strategy and is completely valid for your primary residence or investments. Many people are familiar with rent to own for living room furniture, washer and dryer, and other household appliances. But far fewer people are aware that buying real estate with lease options (also known as lease-to-own, rent-to-own, lease/purchase, or lease with an option to purchase) is a legitimate and even growing method for controlling houses.
Investors in particular want to be aware of this real estate tool. There are several versions that I teach about in multiple courses that can be found at https://wendypatton.com/products. There are many strong benefits to buying real estate with lease options but the biggest is controlling as much real estate with a high profit potential as possible for the smallest investment of your own money.
Buying Real Estate with Lease Options is not a Commitment
The lease-option agreement allows a buyer to lease a property for a set period of time (typically between 1-3 years) with the option to buy the property before a contractual future date. If something turns up wrong with the house, the location, the market goes sour, or for any reason, you can walk away from the deal losing nothing more than your option fee.
Or in an upswing market as most are today, you’ll see the value of the property value increase month by month after you have the purchase price locked in (pure profit). In an upswing market, buying real estate with lease options is an especially low risk investment with almost an exclusively upside potential for high profits. Obviously, the lower the purchase price you lock in the more you can sell for as the price appreciates.
Sandwich Lease Option Investing
One version of buying real estate with lease options is the sandwich lease option. This version requires the least amount of money on the part of the investor. You seek out a willing and distressed seller (yes, these exist in rising markets) to help solve a problem. The problem to be solved is almost always financial but can come in many different forms. One of the most common is someone that needs to move a long distance and needs to sell fast. Another is someone has inherited a house and is now expected to pay the taxes and insurance along with other costs. Still another is someone that has house in dire need of repairs and maintenance.
In the sandwich lease, you gain control of the property by paying a small lease option. You then flip it into another lease option with an end buyer (someone that wants to live in the home). Even if the house needs repairs, you can make some repairs the responsibility of the end buyer in exchange for a reasonable purchase price. Your benefit in this version is the repairs improve your equity position even if the purchase option isn’t exercised. The end buyer becomes more motivated to complete the purchase because they now have sweat equity and/or money invested in the repairs. The entire deal becomes a win-win-win for everyone involved. The seller has his or her problem solved, you make a reasonable profit in the middle of the sandwich lease, and the end buyer is in the position to become a homeowner.
However, be sure you understand the Dodd-Frank Act that was passed into Federal Law in 2010. This is consumer financial law that was passed as a result of the recession. It generally requires that you complete the purchase of the house before you can sell it to an end buyer. In most states, if not all states, you can use seller financing but you must give the end buyer several months to make the purchase decision. Still, this becomes a win-win-win scenario for all involved when you construct the contracts with high ethics. It’s best if you first talk to a real estate attorney.
Other Versions of Lease Options
Sandwich lease options are only one version of how this can be done. A few others include:
- Traditional lease options giving you time and flexibility to decide if you want the house as a long term investment.
- Cooperative Options (wholesaling options to other investors).
- Gaining control of the property and then selling with owner financing to reliable people deserving a second chance in life but the banks won’t finance.
- And several other versions based on being creative.
If you are interested in low cost and low risk investing with a great upside, be sure to avail yourself of the many resources that I have put together to get you started, to help you understand how to put deals together, and to make any kind of deal anytime!
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.
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