Are you ready to “Buy Low, Rent Smart and Sell High?”
Lease options provide a unique opportunity for real estate investors because the potential for ROI increases up to 3 times more than other strategies. Often it’s overlooked and we think it is time to revisit this likely money maker.
If you choose to use a lease options as your primary form of investing you should know it’s a hybrid strategy taking some of the best qualities from both of these other approaches: buy & flip and buy & hold.
Let’s break it down…
When you buy and flip you are typically purchasing a property below market value with the intent to rehab the property and sell at comp rates or higher. There are a couple things that work here—you see an increase in ROI quickly and when they market is flooded with interested buyers your flip won’t sit on the market for long. Plus you can move on to a new project with little hassle or worry.
When you buy and hold a property you are typically purchasing a property below or at market value with the intent to rent the property and maybe sell it after the note is paid off. There are a couple of things that work here too—your property will appreciate over time and you will gain monthly income from renters.
So what if you took the best of those two strategies and put them together? You’d have a lease option.
As Andy Heller points out, when thinking about lease options you really must consider three things—“buying low, renting smart and selling high.” So now that we know what pieces make up a lease option, let’s talk about the nitty gritty strategy details.
Buying Low: Buying low is debatable and dependent on strategy but most investors would encourage you to look for something that is at least 20% below market value and warn you to be careful about rehab and reno costs. Using a lease option strategy naturally lends itself to REO or foreclosure properties—so consider that when looking for a new property.
Renting Smart: Bummer tenants are just a part of renting but being careful in whom you rent your home to can make all the difference. The lease option strategy tends to bring a more diligent renter. They are going to pay you a large lump sum at the front of the term which shows more commitment to the lease terms. They are also going to be making larger rental payments because they have the intent to eventually purchase the property from you. And since they view the home as theirs they are likely to take better care of the property. You also have the opportunity to shift maintenance and repairs to the renter saving you time and money in the long run.
Selling High: Your renters are finally ready to buy and your predetermined terms have stipulated that the payoff provides a major return on ROI! Or your renters can’t meet the terms and are unable to buy leaving you with a well-maintained property ready to be put on the market for sale OR you can find another potential homeowner and collect initial down payment and large rent payments all over again.
So how are you getting paid 3 times?
1. Buying low means there is natural equity and eventual appreciation in the property—$$$.
2. Renting smart mean collecting larger than normal security deposits (down payment) and rents— $$$.
3. Selling high means your renters have met the terms and take over the property or you get to start the collection process with new tenants all over again— $$$.
Maybe it is time to consider a new strategy?
Interested in learning more? Join expert Andy Heller at the May monthly meetings!
AND mark your calendar… Andy will help you hone your “buy & lease option” skills at his all-day seminar on Saturday, May 17th!
Tuesday, May 13th
Wednesday, May 14th
Denver Monthly Meeting - Lease Options, REOs, and Mineral Rights for Real Estate Investors
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Thursday, May 15th
*special date, just for May
Northern Colorado Monthly Meeting - Lease Options, REOs, and Mineral Rights for Real Estate Investors