Knowing something and doing something are very different activities. Knowing it is time to get in on this new market is one thing, but taking action now is what you need to be doing. As soon as you have the criteria for the sweet spot in your market, you are ready to take the action of putting deals together.
How to Begin Buying Real Estate with Lease Options
There’s nothing difficult or tricky about buying real estate with lease options. The first step is literally about getting to know your town a little more with a real estate perspective. Before making phone calls or sending direct mail to prospective sellers for lease options, you need to fine tune your target audience. This seriously improves your chances of finding the deals that will work best for you. How difficult is it getting started? It’s as simple and easy as:
- Targeting desirable zip codes.
- Looking up the median sales prices in the zip code.
- Understanding sales activity across both your targeted and closely related zip codes.
- Fine tuning the targeting to specific houses that are selling well.
With this knowledge in mind, your first deal is only a phone call away. With those pre-screening tools and the right telephone script, you’re statistically almost certain to get one or more deals within 50 or fewer calls. And there’s no reason you can’t have a five-figure deal within the first five calls. Practice, practice, practice is what counts early on when buying real estate with lease options. Targeting, practicing, and fine tuning your script is how you make your early calls count the most.
Get Experience Under Your Belt and Cash in Your Bank Account!
Making Your First (and every) Call
As soon as you begin making targeted calls, you need to learn details about the potential properties. Quickly qualifying lease option properties enables you to focus on the properties most likely to become fruitful deals while keeping phone calls short if the seller isn’t motivated. The information you begin gathering is:
- How much equity does the seller have in the property?
- Are repairs needed and how serious are any needed repairs (time, money, and risk)?
- What is the seller’s motivation to sell? And how much equity are they willing to make available to close the deal?
- When does the seller need cash and how much do they want?
There is No Deal Until the Prospect Passes Through These Gates.
You do not want to lease option a property that requires you to invest money in the home. At least not when you are beginning. It’s fine to do some painting and shampoo the carpets but no central heating replacement, no new roofs, and no foundation repairs. Not even if you think the return on your investment will be substantial. Major repairs involve your time, money, and increase your risk. Buying real estate with lease options is about minimizing risk and costing little or no money. For your first few deals, you will do best by sticking with pretty houses with white picket fences.
*Caveat, you may be able to market a handyman special to another investor using the Cooperative Lease Option method.
You might score 2 deals out of the first 5 calls or finding 2 deals might take 50 calls. No one knows for sure until you try. Some sellers will quickly accept what you offer and others will not (but they might call back later). What you do know is that the more deals that you offer, the more deals you will close.
How You Recognize the Right Deal for Buying Real Estate with Lease Options
What you now know is that if properties in the zip code have median values of $110,000 you don’t want to make a deal for a purchase price at $200,000 for a house that could be worth $275,000 after you make $50,000 in repairs. Too much risk and too much of your money will be in the deal.
Instead, you want to create steady cash flow with three or four properties priced close to the median price for the neighborhood. You can typically seal these deals in the same amount of time but at lower risk and for higher earnings.
Your Financial Criteria is 15% or $20,000.
You may want to adjust to your local situation but the general rule of thumb when buying real estate with lease options is it has a resale value near the neighborhood median price and your earnings will be close to 15% of the resale value or $20,000. This includes all three income streams – 1. the option fee, 2. the monthly rent spread, and 3. the back end.
A common Michigan deal would be a median neighborhood sales price of $80,000. Your front-end option fee is $4,500. Another $4,500 comes from the rent spread over 24 months. And the final $10,000 comes on the back-end when the tenant/buyer completes the purchase.
Those numbers total $19,000. Fifteen percent of the $80,000 value is $12,000, which means $19,000 is well above the 15% threshold. It is also only $1,000 shy of the $20,000 criteria making it a solidly representative deal when buying real estate with lease options.
If the median sales price is closer to $400,000 in your neighborhood, your numbers will be different – and much higher.
It All Begins When You Make the First Call!
Lease options are proven to work in every market and the COVID-19 market continues proving how truly robust this method is. Here is the step-by-step way to making it happen by taking action now!
- Investing In Real Estate with Lease Options.
- Advanced strategies for Buying and Selling with Lease Options.
- Your Wealth Building Arsenal.
- Add Personalized Coaching.
- Cooperative Lease Options.
- Expand to Get the Deed “Subject To.”
- Round it all out by Working with Realtors.
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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