Generate Income through Lease Options
Until recently, answers to the question “who makes money in the real estate business?” would have been – the seller, the banker, and the agent. The buyer of homes never gets a mention in the ‘money-making’ category. Why? Because it is the buyer who pays - the down payments, the monthly installments, the taxes, etc. Buyers, take heart. The good news is that proper utilization of Real Estate options can help buyers too to make a profit in this field.
Can Buyers Earn from Their Properties?
With a real estate option, the buyer has the exclusive right ‘to buy or not to buy.’ And once the buyer has this option in hand, no one else has the right to do anything with the property without his permission! In this situation, the seller has no option. He is obligated to sell. Supposing a seller with little or no equity in the property wants to desperately sell his property. The buyer, instead of buying, leases the property with an option to buy. This allows the buyer to rake in profits without being the owner of the property.
Lease options can be utilized in the following situations:
1. Pending residential foreclosures
2. Sellers seeking debt relief for homes
3. Sellers facing personal situations like a divorce
Michael Van Horn, an advanced trainer with Wealth Intelligence Academy says that one can start investing in real estate, with little or no cash using lease options. He says “Options let you control a property without having to buy it, and you can profit at every step of the process.”
On Lease Options
When people cannot go out for an outright sale, say for example due to property mortgages, they turn towards the lease option. A sandwich lease option is one common example. In this scheme, the buyer leases a property with an option to buy in three years. This property is leased by another tenant/buyer from the initial buyer with an option to buy in two years. The buyer then, using his option, purchases the property and sells it to the tenant/buyer at a profit.
Instead of a tenant/buyer, one could also use the lease option with another investor, or buy the property instead of leasing it, and then sell it with a lease option. But Van Horn says that since tenants/buyers expect to own the property, they usually take good care of it and make payments on time. He also recommends the identification of desirable areas – generally working, middle, and upper-income areas, where potential tenants/buyers would want to own homes.
Lease options are feasible on both multi-unit buildings and single-family homes. Van Horn says that owners having difficulty in disposing of small apartments will lease option it. He also says that one gets into the property for a lesser down payment, and enjoys benefits from cash flow while working on the financing over a period of time.
Laws regarding real estate options differ from state to state. Consult a real estate attorney regarding regulations in a particular state, before going ahead with a lease option transaction for homes.