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The best part of doing a lease option deal is being able to witness the end results. Unless a deal is a win for each party, walk away from it. The seller must win, the investor in the middle must win, and the tenant-buyer must win. When all three can win in a transaction, there is nothing better! This chapter contains stories shared by different investors in different parts of the country. The sellers’ and buyers’ names have been changed, but the numbers and details reflect the specific transactions.  These deals will inspire you and show you how you can also be successful and create unique solutions for motivated sellers.

Lease Option Case: Steve’s First Deal

This study is important because it describes a first deal. I like it because it highlights how each party to the transaction was able to come away as a winner.  Here is how Steve described it.

Sara had a house in Fowlerville that she kept after her divorce. She couldn’t stand to continue living with the memories from the marriage, so she bought another house in Fenton, closer to where she works. She had the house “For Sale by Owner” and “For Rent”. She wasn’t excited about being a landlord, but she was looking for debt relief in a quick way.

I called on her “For Rent” ad and we met to discuss some options. I agreed to start paying her $1,100 per month immediately (because that is what she needed to cover her expenses) and for $1,000 I bought an option to buy at $155,000 sometime within the next three years.

I put about $300 into the house to fix a few things, plus a home inspection and title search, so my costs were minimal; around $500.

Two days after I signed with the Sara (the owner), a tenant/buyer from my accumulated list paid me an option fee of $5,000 and the first month’s rent of $1,195 to move in. The lease term was 18 months and the buy-out was $169,900. There is no lease money being applied to the purchase price. The lease started several months ago and they have been paying every single month early. They have never called me with an issue of any kind, so it is going about as smoothly as I could ever hope.

I liked this deal because the owner was very happy that I took the house off of her hands, and she always receives rent from me by the first of the month. The tenant/buyers were very happy because they were able to get themselves and their 3 children from an apartment into a nice house on an acre of land. This is a “win” for me also because I made money on the front end with the option fee of $5,000 plus $95.00 monthly cash flow, and the whole deal will make over $16,000. Not bad for my first deal! -S. Giroux – Michigan

Lease Option Case: The Buyers Provide Cookies

This is a fun story from two of my students who really got off to a great start on their first lease option deal.  They did such a great job that their buyer has bought additional properties from them and even sends them Christmas cards and cookies!  Here’s how they told it.

We attended your seminar on Lease Options in Seattle.  Within one week of your seminar we located a vacant rental in a nice Seattle neighborhood and were able to negotiate a lease option with the seller. We put the home under contract to purchase it for her full asking price of $175,000.  We were willing to pay $190,000 but did not need to go that high. We were to pay $1,000 down, payable in 90 days or when we found a tenant. We pay no interest with 100% of our $900 monthly payment going towards principle reduction.  We have three years to cash her out.

We sold it on a 1-year lease option in about 10 days for $200,000. That was a great deal for our buyer. We’re confident we could have sold it for $220,000.

We took $10,000 down, leaving us $9,000 after paying the $1,000 to our seller. We are getting $1,295 a month from our tenant with no rent credit and none going toward reducing their principle. We got a $395 per month positive cash flow for one year that added up to $4,740 + $25,800 after one year when our tenant exercised their option.

 After making $30,540 on our first deal using the strategies you taught us at a half-day seminar, we signed up for your next 3-day lease option bootcamp and ended up acquiring 19 more properties the following year, and two of them were clients referred to us by our buyer who has now acquired two more rentals from us. Our buyer still sends Christmas cards and cookies and continues to thank us for helping them buy a home when no one would loan them money because of a previous bankruptcy.

Thank you for sharing your lease option strategy and inspiring us to jump out of our comfort zones.  -The Barclay Brothers, Washington

Lease Option Case: An Investor Reaps What He Sows

This is an interesting case that shows the value of establishing relationships with Realtors.  You may recognize Shaun’s name—yes, he is a master of Short Sales himself, but he started out just like you and me (it’s good to know different real estate methods so you can turn anything into a deal!).

Shaun got a call from a Realtor that he had spoken to over a year earlier.  She had kept his card.  This particular house had been listed for six months without luck.  The seller had moved out of state, leaving the home empty for the last four months.  Shaun was able to lock in very flexible terms to create a terrific deal for him while relieving the seller of his burden and allowing a new buyer a fresh start.

This deal came as a referral from one of the realtors that I talked to OVER A YEAR AGO!!!  She called me out of the blue from my card she had kept.  Here are the numbers:

$700.00 per month – Lease option price from seller

$850.00 per month – Lease option price to buyer

$150.00 per month – profit

$132,000.00      Purchase price from seller (for as long as I want… I can buy this house for this price in a month or in ten years; he didn’t care either way)

$159,000.00      Sales Price to buyer within 24 months

I also got a $7000.00 option fee from the lady up front. 

Not a bad deal, huh?  This is almost a $30,000 deal.  The great thing about it is that the buyer has pretty decent credit.  She could qualify for a loan on this property right now if she wanted to, but is going to wait about a year to get her score up from a previous divorce (her husband had a few late pays).  Not only that, but if she doesn’t pay me, it’s no big deal.  I’ll just do this whole thing all over again.  I also negotiated with the seller that if for any reason I have a tenant that stops paying me that I don’t have to make payments until I get another tenant in the property. 

This property was listed on the MLS for 6 months at $155K with no luck.  The fact that I offered it on a lease option and had a pretty good marketing plan allowed me to get MORE than a realtor could get.  (The house was in great overall condition, it was just a little bit outdated compared to the rest of the neighborhood.)  The seller had moved to Texas and it was sitting empty for 4 of those six months, so he was obviously motivated. 

Thanks for showing me the ropes on this one Wendy!  I love it! -Shaun McCloskey, Missouri

Lease Purchase Case: Cleberto Has Multiple Exits

This situation shows that even though Cleberto had an exit in mind when he bought the property, market conditions in combination with the nature of buying on a lease opened up additional opportunities.  Cleberto found a property listed with a realtor.  It was in a nice area of Orlando where he holds most of his properties.  He has a good understanding of the market and home prices there. Recognizing the below market price per square foot, he followed up on the property.

It was a 7-year old home in a nice gated community in Orlando. It had been listed for 2 months at $339,000.  The following drew our attention:

The price per square foot was below the subdivision average.

MLS remarks: Motivated seller, $2000 bonus.

Driving by the property we noticed a recent “FOR RENT” sign. Now it was becoming really attractive. We figured the owners must need some cash flow soon, and we wrote our offer accordingly.

After some negotiation, the following was accepted:

  1. A lease purchase at the $339,000 FULL price (to get their attention) for a 2 year term.
  2. We would advance 3 months’ rent.
  3. Advance $2000 of listing agent’s commission (towards purchase price)

Items a & b payable to owner on or before 60 days

  1. $500 in escrow (towards 1st month rent)
  2. Rent of $1895
  3. We also requested that the $2000 bonus offered by owner be paid to listing agent (that way the agent would have $4000 of his commission paid soon)

We had previously experienced problems taking too long to rent or rent-to-own a property, and had decided for this one to have a fallback plan, in case it was taking too long to market.

Our Lease Option plan to find a buyer was as follows:

  1. Rent $1,995 (to move it fast)

2.  Option fee of $10,000

3. Price : $379,000 for a 12 month term or $389,000 for an 18 month term

This should give us a profit of more than $35,000 and $45,000 for the 12 and 18 month periods, respectively.

To our surprise, along came someone offering us $2,295 for a straight 12 month lease. We accepted it because it increased our monthly cash flow to $400/month, and there was an up trend in our real estate market.  We believed that trend would continue over the next couple of years.

As the end of the current 12 month lease with tenant approaches, the market has experienced the tremendous appreciation as we expected. At this point, these are some of the alternatives we are considering:

Sell this property for at least $390,000 and realize more than $40,000 in profit. Comparables are already there to support the price.

Put it back on the market as a Lease Option with a price increase of some $40,000, providing a future $70,000 or more in profit.

Buy it early from the owner and hold it longer. Since we would be closing earlier, we may request some breaks from them.