How do I maximize the value of the single family investment property I just purchased? Do I rent it? Do I sell it? We recommend that you do both, rent and sell it by using lease options.
WHY LEASE OPTION?
Buy/Rent and Buy/Sell investment strategies are both proven methods of making money in real estate. However, both have their drawbacks.
BUY/RENT
Investors who buy and then strictly rent their properties run the risk that they will bring in bad tenants who don’t pay their rent and who trash the home. Further, purely leasing or renting is a slow way to grow your real estate business, because the cash inflows are much smaller than those you get when you sell properties.
BUY/SELL
On the other hand, investors who buy and strictly sell (known as flipping properties) run the risk that their homes may not sell for several months. That delay can reduce profits due to holding costs (mortgage payments, utilities, etc.), which may lead to discounting the property to get it sold. Additionally, the cash inflow is very irregular (not monthly like the investor who rents), and months and sometimes years can pass between cash inflows from property sales.
LEASE OPTIONS
The lease option combines much of the best of both renting and selling, and actually improves on them. It provides a vehicle to get a good, consistent cash inflow (monthly), get better tenants (who are more likely to pay their rent on time and take care of your home), and eventually sell the home for fair market value (i.e., without discounting).
Our long-term goal for each property is to sell it at a fair price and profit, but our short-term goal is to get good people into the home quickly and get the cash flowing. If someone wants to buy the home immediately in response to one of our lease option ads, we typically sell it to that buyer at fair market value (or close to it) and take the large profit and cash infusion. However, if the home doesn't sell quickly, we lease it and give the tenant the option to purchase, hence the lease option.
The lease option allows owners to generate good profit (see the six profit sources) and cash flow quickly. The reason lease option homes tend to go much faster than homes for sale is that the amount of money and good credit to get into these homes is usually much less and far fewer good lease option homes are on the market. Therefore, lease/purchases are able and willing to move quickly to close on these deals. Your holding costs (utilities and mortgage payments) are minimized while the home sits on the market, and you can still eventually sell the home at the fair market value.
SIX PROFIT SOURCES
As briefly discussed, our specific formula for acquiring properties and our unique lease option program allow you to generate good profits and quick cash flows (as well as diversified risk) because of the six profit sources. While many investors rely solely on the profit and cash flows from either renting or selling homes, we get our profits and cash flows from the following:
In our view, this method of real estate investing is the best method for ensuring that the profits and cash flows from our real estate portfolio keep growing at a stable, consistent rate. It also allows us to grow our real estate portfolio faster and more consistently than many other investors, who are either (1) strictly "flippers" and must find the few properties that are discounted at least 25 percent so they can sell them for a profit or (2) strictly landlords and must wait years for their positive rent cash flows to accumulate before they can use their profits to buy more properties.
WHY LEASE OPTION?
Buy/Rent and Buy/Sell investment strategies are both proven methods of making money in real estate. However, both have their drawbacks.
BUY/RENT
Investors who buy and then strictly rent their properties run the risk that they will bring in bad tenants who don’t pay their rent and who trash the home. Further, purely leasing or renting is a slow way to grow your real estate business, because the cash inflows are much smaller than those you get when you sell properties.
BUY/SELL
On the other hand, investors who buy and strictly sell (known as flipping properties) run the risk that their homes may not sell for several months. That delay can reduce profits due to holding costs (mortgage payments, utilities, etc.), which may lead to discounting the property to get it sold. Additionally, the cash inflow is very irregular (not monthly like the investor who rents), and months and sometimes years can pass between cash inflows from property sales.
LEASE OPTIONS
The lease option combines much of the best of both renting and selling, and actually improves on them. It provides a vehicle to get a good, consistent cash inflow (monthly), get better tenants (who are more likely to pay their rent on time and take care of your home), and eventually sell the home for fair market value (i.e., without discounting).
Our long-term goal for each property is to sell it at a fair price and profit, but our short-term goal is to get good people into the home quickly and get the cash flowing. If someone wants to buy the home immediately in response to one of our lease option ads, we typically sell it to that buyer at fair market value (or close to it) and take the large profit and cash infusion. However, if the home doesn't sell quickly, we lease it and give the tenant the option to purchase, hence the lease option.
The lease option allows owners to generate good profit (see the six profit sources) and cash flow quickly. The reason lease option homes tend to go much faster than homes for sale is that the amount of money and good credit to get into these homes is usually much less and far fewer good lease option homes are on the market. Therefore, lease/purchases are able and willing to move quickly to close on these deals. Your holding costs (utilities and mortgage payments) are minimized while the home sits on the market, and you can still eventually sell the home at the fair market value.
SIX PROFIT SOURCES
As briefly discussed, our specific formula for acquiring properties and our unique lease option program allow you to generate good profits and quick cash flows (as well as diversified risk) because of the six profit sources. While many investors rely solely on the profit and cash flows from either renting or selling homes, we get our profits and cash flows from the following:
- Acquiring the property at a discount (usually 10 to 20 percent) then selling the property at fair market value as set out in the lease option agreement
- Creating a positive cash flow from monthly rent payments that are often 25 to 50 percent greater than mortgage payments
- Writing off tax, interest, repairs, and other charges on our annual tax return
- Paying down the loan with the monthly rent payments
- Getting appreciation value on our homes when the lease/purchaser chooses not to buy or requests an extension
- Obtaining option money from the lease/purchasers for the exclusive right to purchase the property (usually 1 percent of the purchase price)
In our view, this method of real estate investing is the best method for ensuring that the profits and cash flows from our real estate portfolio keep growing at a stable, consistent rate. It also allows us to grow our real estate portfolio faster and more consistently than many other investors, who are either (1) strictly "flippers" and must find the few properties that are discounted at least 25 percent so they can sell them for a profit or (2) strictly landlords and must wait years for their positive rent cash flows to accumulate before they can use their profits to buy more properties.
