Risks in lease option investing

Yesterday, I talked about 5 advantages to lease option investing. To be fair, today I'm going to look at some of the risks associated with lease option investing and how to manage them.

The biggest risk in lease option investing is the possibility of the seller having a problem financially, either paying their mortgage or property taxes or some other event that results in a lien against the home. This can be a problem because it can prevent the seller from selling the home when it comes time to close the deal. So how do you manage this risk? First, check to make sure the seller is solid, always pull title work on the home. Second, record a memorandum of option. Third, get a signed bank authorization from the seller so you can contact their lender directly to verify payments are being made - or insist on making the payments yourself and sending verification to the seller.

There is also the risk of the tenant buyer you place in the home not paying their rent. If this happens you need to take the proper steps to evict, don't dawdle on this, get the process started right away. The buyer can always catch up, but you can't make up for lost time if you delay by listening to sob stories from the buyer. You can manage this risk by doing proper tenant-buyer screening. Don't go by gut feeling, do the proper screening to make sure you are putting a solid tenant into the property.

Like any kind of real estate investing there are always some risks involved, but the big advantage you have with lease option investing is that you don't have to close on the deal. It's an option, meaning you have the option to buy, not the obligation.

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