It amazes us that more real estate investors don’t take advantage of a marvelous little technique called lease purchase options. Uhhh…say what? Don’t worry. It might be a mouthful coming out but is actually a pretty simple process. In a business that is notoriously get-rich-slow, putting together the parties in a lease purchase option can drop a few thousand dollars (or more) into your pocket in a matter of weeks.
Here’s how it works.
Tougher mortgage qualifying has created an entire class of people who would LOVE to buy a home but can’t meet the post-foreclosure stricter standards of traditional lenders. They want to stop renting, and even have some resources, but can’t convince a bank to loan them money. These tenants’ are the first half of the equation. They create demand.
Once you have located a tenant / prospective buyer, it’s time to find a home owner who is open to selling through slightly non-traditional means. A rent-to-own home, sometimes called a lease purchase option, simply gives the renter the right to buy the house at some point. Some agreements stipulate that a certain percentage of each monthly rent payment go towards the purchase price. Others provide a certain time frame, sometimes a few years, during which the tenants can exercise the “buy” right. Now you have the supply.
Where do you find rent-to-own properties? Simply look around. To a motivated middleman or middlewoman they’re sitting on every street corner. There are literally hundreds of thousands of properties on the market right now generating no buying interest at all. No showings. No nothing. Many are properties in which the owner has refused to drop the price low enough to compete with the plethora of short sales and foreclosures.
Your mission, should you choose to accept it and wouldn’t mind a nice check for your efforts, is to match up the home owner and tenant. How do you know if an owner would be amenable to a lease purchase option? Ask them! The worst they can do is say no, and you move on to the next name on the list. What you’ll find is that few property owners even realize a thing like rent-to-own exists in the real estate market. If their house has been sitting, gathering dust for any length of time, there’s a good chance they’ll at least listen to what you have to say.
The Commercial Investing Center Team
Flickr / sherwoodrealestate