Standard Lease Option Deals

Wendy’s Ethics Rule: Don’t do lease options with potential buyers who have no way of ever being able to get a mortgage. That’s just being greedy and taking advantage of someone. It is not fair to the buyer. If the buyer messes up, shame on them! If you mess them up, same on you!


My typical strategy is to lease option from a seller and then to lease option that home to a buyer.

How Lease Options Work

SELLER > options to > INVESTOR (may buy) > options to > BUYER (may buy)

The above illustration depicts a sandwich lease option. In a sandwich the meat is in the middle-that’s the best part. You (the investor) are in the middle of this transaction; your reward is the meat-the difference between what you can pay for the home and what you can sell it for. There are other ways to make this deal even better and more profitable, which are discussed in Chapters 5 and 9.

A variation of the sandwich lease is the lease purchase. While a lease option gives the investor the right to purchase real estate, the lease purchase guarantees that he or she will purchase the property during a given time period. Under some circumstances I will committ to buying certain homes using this technique- for instance, with specific Realtors, with deals that have a very good potential for profitability, when I have a solid buyer lined up, with high appreciating markets, and with very long-term deals. I do not use lease purchases much when I’m selling, because they are hard to enforce. If your buyer defaults, you have to sue him specifically for nonperformance in order to get him to buy your home. It is costly and very time consuming to do this. If your buyer cannot get a mortgage it is also a waste of time. I would recommend moving on and, in most cases, finding a new buyer. I therefore use lease purchases mostly to buy and rarely to sell.


Excerpt taken from Investing in Real Estate with Lease Options and ‘Subject To’ Deals, Chapter 1, Pages 6-7
 
 
 
 
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