lease option

[James Presley]

Can anybody give me a thorough explanation on how this works?

[Brian Gibbons]

@James Presley 

A Primer in Lease Options

On the Seller Side: 

If you are selling on lease option

You want to underwrite the buyer-renter as to the ability to repay, and use a mortgage loan originator (MLO).  The MLO will use the Dodd Frank and Safe Act laws to make sure the renter-buyer has a reasonable chance to get the mortgage.

Benefits: You as the seller usually (not guaranteed) to get a more serious renter to pay on time, and there is usually an option fee of 3% or so, in line with a FHA down payment. According to Section 1234 of the IRS code, all option payments are income tax deferred until either the option is either 1) expired or 2) fully exercised. If the renter-buyer does not exercise, usually the fee is non refundable (you could offer a portion returned to the renter-buyer).

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On the Buyer Side:

If you are buying-controlling on a lease option

If you are renting now, you can rent more house per dollar than owning (sometimes).

If you need time to get qualified as far as paying down debt, or needing to boost your FICO score, leasing first then buying would be a good choice.

My advice is to see a MLO (Mortgage Loan Originator) and see what needs improvement, get that in writing, and prospect for home sellers that need to sell.

Benefits: You as a renter buyer can pay market rent and enjoy the benefits of a great neighborhood, and have the landlord pay taxes and maintenance.

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As a Real Estate Investor, Using Lease Options when buying

First of all, learn how to buy-control on terms, such as sub2, installment sales on free and clear houses, wraps, master leases and lease options.

Be a transaction engineer, not a one trick pony.

I believe it is better to be licensed than not as a Transaction Engineer.  So get a sales license.

Offer the home seller 1 low cash offer and 1-2 term offers.  

So offer a low cash offer plus sub2 offer and lease option offer, for example.

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As a Real Estate Investor, Using Lease Options when selling

Find "just missed financed" home buyers. Start a meetup.com group for rent to own home buyers. Tell the RTO Prospects if they have a good income, 3% down, and are willing to see a MLO, they can qualify for a 12 to 24 month Lease 2 Own Home Plan.

How You Make Money

a. Full Market Rent

b. No Vacancies

c. Conscientious Tenants

d. full price on sale of home with no contingencies in 12 to 24 months

Strategies:

• Lease Option Assignments - Wholesaling Lease Options - Cooperative Lease Option (all the same thing)
• Sandwich Lease Options (lease option from seller and sublease and sub option to renter-buyer)
• Master Leases
• Master Lease Options