Sometimes I would love to go back in time, just to get a chance to do a few things differently than what I actually did…or didn’t do – of course, hind sight is 20/20 right?
The reason for the question “Why Lease Options”, is one that I try to stress to everyone who wants to start making money in real estate. Please understand that this is not a suggestion based on selfish motives, it is based purely on experience.
Here’s the hard truth – most everyone who looks to start investing in real estate doesn’t know where to begin, does not typically have the funds or resources to start ‘investing’, and doesn’t know what to do (other than what one of their friends did who bought a property, fixed it up, and rented it).
Now, don’t get me wrong, I’m not knocking anybody that is doing that, or the many who have done it and have been successful in that endeavor. But the majority of the people I talk to and get to know, are not in a position with their time or with their funds, to accomplish that.
And the reason why I believe, and am convicted of the fact, that lease option strategies are the absolute best strategies in all of real estate investing for every beginning and seasoned investor to get involved with, is because it takes no capital, very little time, and minimal training, to start getting paid quickly in real estate investing.
If you were to purchase an average rental property, in a typical neighborhood (leaving out the sky high rents in major metropolitan areas, let’s say for example a 3 bed, 1.5 bath home rents for $1,000, at a cost of $100,000 including holding costs, and the time it takes for you to get it in order until you can rent it out, again, just for example only.
Assuming you did not use a private lender (most beginning real estate students do not have those by the way) the monthly payment with a bank using your own credit on a typical commercial loan will cost you about $575/month, not counting taxes and insurance. Let’s add $175/month for that, requiring a total payout of $750/month.
Now, that payment has to begin whether you have a tenant lined up or not! But for sake of our example, let’s just say that everything goes as perfectly as possible, and you have a tenant lined up right away. What’s your cash flow in this example?
Rent at $1,000/mo – $750/mo in expenses = $250/month profit (again, nothing breaks or requires repairs at all in this example).
That is an annual profit of $3,000 the first 12 months you have a tenant.
Ok, you get the picture – $3,000 in the first 12 months in profit in our example.
Let me give you another example. Let’s learn how to locate, talk to, and put a property under contract to control a property. Now, finding a seller who is motivated is one thing, but finding a seller who is motivated and getting them full retail price for their property is another! This is the strategy we employ called a ‘Cooperative Lease Option’.
Putting a property under contract for full asking price, with no additional fees to the seller, while placing a tenant/buyer in the property will yield a typical payday of $5,000-$10,000 in a very short period of time.
I have a student who had no background in sales, marketing, or real-estate for that matter, and when he followed the steps I gave him, was paid $6,000 from the day he found and talked to the seller, and 20 days later when the tenant/buyer was placed in the property – 20 days for a $6k payday!
But let’s say you need more time to learn these strategies, and to find a property with a seller who is willing to sell their property on contract…and it took you 90 days.
That’s is still twice the profit, in a quarter of the time as the previous example, on a home you didn’t take title to, or use your money or credit to purchase, and did not have to take time to do any rehab on it.
You see – this is a strategy that anyone can utilize, and the profits can be so much better, with such little risk, and far less time than the type of real estate deal that most people are familiar with.
Now you can see exactly why I believe lease options are the absolute best model that anyone can utilize, especially those who do not have the resources necessary to do a ‘traditional’ type of real estate model.
All the Best!
Jim Aydelotte
