mochilero
10-03-2005, 07:46 PM
I understand the principle of a lease-option deal, but just finished a book that suggested using a lease-option on both sides of the transaction. In other words, lease a home (no money down) with an option to buy, then find a tenant to lease it with an option to buy (at a higher rent and price), who gives you a big option fee up front. Have any of you had experience with these, and with what results?
The authors use examples where they put no money down, then collect $8,000 to 15,000 as a non-refundable option fee (applied towards the purchase price, of course). It seems it would be difficult to find sellers that will lease to you for years while letting you sub-let it, and really tough to find buyers with money for large option fees that wouldn't just go out and buy a home. Any success stories here using this method?
Steve
http://www.HousesUnderFiftyThousand.com
malcolan
10-24-2005, 05:02 PM
I understand the principle of a lease-option deal, but just finished a book that suggested using a lease-option on both sides of the transaction. In other words, lease a home (no money down) with an option to buy, then find a tenant to lease it with an option to buy (at a higher rent and price), who gives you a big option fee up front. Have any of you had experience with these, and with what results?
The scenario you are describing is called a "sandwich lease". I've done one before, from the sellers standpoint. I gave another investor the lease with the option to buy, which he in turn lease-optioned it to someone else, because all I really wanted was to lease it anyway. They never exercised the option (most don't).
The authors use examples where they put no money down, then collect $8,000 to 15,000 as a non-refundable option fee (applied towards the purchase price, of course). It seems it would be difficult to find sellers that will lease to you for years while letting you sub-let it, and really tough to find buyers with money for large option fees that wouldn't just go out and buy a home. Any success stories here using this method?
8,000 to 15,000 is arbitrary. The option consideration fee should be anywhere from 1% to 5% of the selling price. Motivated sellers that are behind on payments would allow you to do this in a heartbeat. Finding buyers isn't much harder. Many people have credit issues preventing them from obtaining a mortgage, even though they have the down payment. What I usually do is work with a mortgage company and the tenant/buyer to help resolve credit issues until they are able to close.
Some investors have been misleading tenant-buyers, though, causing some states to make this practice illegal. It's too bad, though, because it's an excellent tool if you want to really help people buy houses that normally wouldn't be able to.
The author was probably gearing this method towards people with bad/no credit themselves, or as a "no money down" technique. I don't usually mess with lease-options anymore, though. If your credit's good enough, It's easy to get a 100% loan (no money down) these days.
:)