When to do lease option?

Let me give you an example situation where you as a real estate investor, or if you are a Realtor, when you can suggest a lease option to the home seller. As a real estate agent our responsibility to our home seller is to get their home sold, and sometimes conventional methods just don't work. That's when we can offer the home seller the alternative of a lease option as a means to get their home sold. Remember, any time a seller suggests that they might have to rent their home if they can't sell it you know they are prime candidates for lease options.

So let's look at an example situation where a home seller might be a good lease option candidate:

A doctor has built a new home for himself. His old home is worth $200,000 and he owes $125,000. He has $75,000 of equity. He is not behind on payments, and he did not need the $75,000 in cash to build the new home. His old home is now sitting vacant and it hasn't sold yet. He qualified for both house payments at the bank and he can technically afford both, but who wants to make an extra house payment for a home that's sitting empty?

Although he is motivated to sell because he's paying out of pocket every month to own a vacant property, this type of seller isn't going to just walk away from the home. No way is he going to give up all of his $75,000 in equity and no way are you going to pay that much cash out of pocket.

When you lease option this house, he gets most of his equity back - although it won't happen until the lease option buyer you find closes on the property. The deal might work like this: You, as the real estate investor, option the property for $190,000 and make payments to the seller that equal his total mortgage payments with 100% of that amount applying towards option credits (let's say $1,200 per month). You then sell the property to a lease option buyer on an 18 month lease option for $200,000 with a monthly rent of $1,350 (which is the going rate in rent for that area). You, as the investor would make about $34,000 on the deal.

The doctor will get the remainder (less real estate commissions) of his equity back plus he doesn't have to worry about property management or a home sitting vacant. Anyone who has had a home sit vacant knows how stressful it can be a what a relief it can be to not have to worry about that.

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