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The cornerstone word of real estate investing is “control”, and lease option deals are one of the hallmarks of this idea. A lease option deal can sometimes be called a “rent to own”. Lease options are a contractual agreement between a property owner and a party of interest, where the party of interest assumes control over the property for a length of time and has the right to exercise their option to buy the property anytime during the life of the lease. This is the most common lease option model. It can be seen by a home buyer as a way to kind of “try-on” a house without having to make a long term commitment, but then there is also how an entrepreneur sees lease option deals.
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The Art of the Deal
The lease option is a form of creative financing for real estate deals. The main catalyst that sets some of the best deals in motion is debt relief. There are up to three types of people involved, and each have their list of debt relief benefits from partaking in a deal:
The Property Owner
- Mortgage payments are covered by rental income
- Passive income stream
- Property improved and/or maintained by tenant buyer
- Benefit from debt free appreciation/equity, if the option to buy is not acted upon
- Asset remains in portfolio while collecting payments (until the day the property is closed on)
The Tenant Buyer
- Little to no down payment
- Gain “dibs” to purchase specific property for a length of time
- Become a homeowner even with a low credit score
- A portion of the rent is applied to the agreed principal sale price
- No tax or mortgage obligation
The Entrepreneur
- A way to assume control of a property with low risk
- Cash flow from subleasing premiums
- Tenant buyer responsible for maintenance/upkeep
- Capital gain if tenant buyer exercises option to buy
- Gain “equity/appreciation” in your lease option deal if tenant buyer does not exercise option
The preceding list of benefits should be an indication of why lease options are a favorable creative financing option for entrepreneurs. There are many exit strategies and low financial risk when leasing. The challenge will be finding a negotiable property owner with a real estate asset that fits a lease option model.
Locations and Models
1. The most common real estate leased is commercial space. Whether its office space, warehouses, storefronts, or others, leasing is the way to go if you are ready to expand your business into a bricks and mortar locale. This is the best way to test out the market in the area without committing to it.
2. Next would be single family homes in predominately residential suburban parts of town. This would be an ideal area for sandwich leasing opportunities, along with fix and flip as well. Inner city areas may be better for multi-family opportunities, where you could assume control to make improvements over time while still collecting rental income less a mortgage obligation.
3. Lastly, you can lease land, instead of paying a lump sum to own it or take on debt. This can be an inexpensive way to assume control of land that you may develop, improve, or use to generate a stream of income from. Land can be tricky, make sure you have an understanding of zoning laws, and having a surveyor on the team also wouldn’t hurt.
The lease option is a form of creative financing for real estate deals. The main catalyst that sets some of the best deals in motion is debt relief. There are up to three types of people involved, and each have their list of debt relief benefits from partaking in a deal:
The Property Owner
- Mortgage payments are covered by rental income
- Passive income stream
- Property improved and/or maintained by tenant buyer
- Benefit from debt free appreciation/equity, if the option to buy is not acted upon
- Asset remains in portfolio while collecting payments (until the day the property is closed on)
The Tenant Buyer
- Little to no down payment
- Gain “dibs” to purchase specific property for a length of time
- Become a homeowner even with a low credit score
- A portion of the rent is applied to the agreed principal sale price
- No tax or mortgage obligation
The Entrepreneur
- A way to assume control of a property with low risk
- Cash flow from subleasing premiums
- Tenant buyer responsible for maintenance/upkeep
- Capital gain if tenant buyer exercises option to buy
- Gain “equity/appreciation” in your lease option deal if tenant buyer does not exercise option
The preceding list of benefits should be an indication of why lease options are a favorable creative financing option for entrepreneurs. There are many exit strategies and low financial risk when leasing. The challenge will be finding a negotiable property owner with a real estate asset that fits a lease option model.
Locations and Models
1. The most common real estate leased is commercial space. Whether its office space, warehouses, storefronts, or others, leasing is the way to go if you are ready to expand your business into a bricks and mortar locale. This is the best way to test out the market in the area without committing to it.
2. Next would be single family homes in predominately residential suburban parts of town. This would be an ideal area for sandwich leasing opportunities, along with fix and flip as well. Inner city areas may be better for multi-family opportunities, where you could assume control to make improvements over time while still collecting rental income less a mortgage obligation.
3. Lastly, you can lease land, instead of paying a lump sum to own it or take on debt. This can be an inexpensive way to assume control of land that you may develop, improve, or use to generate a stream of income from. Land can be tricky, make sure you have an understanding of zoning laws, and having a surveyor on the team also wouldn’t hurt.
