Success Coaching on Various Profit Centers with Lease Options

When I coach real estate mentees, the number one question is always....are lease options and lease purchases profitable as a good business opportunity?  As an investor, if you’re looking to do this as a business or as a passive investment for yourself and your family, it is definitely very profitable because there are at least three profit centers in a lease option.  The first one is “option consideration,” most people call this a security deposit, but an option consideration is when a tenant puts down money, let’s say two times or three times the rent they would put down as a security deposit; they will put that down as an option consideration.

For example, the rent is $1,000.  On a regular rental, they would put down the first month’s rent in a security deposit of $1,000 and move into the property.  On a rent-to-own, that same tenant would put down two or three times that amount, which is $2,000 or $3,000 in an option consideration, as well as the first month’s rent.

We mentor our students to know that the money that the tenants place into the property is their option to purchase the house when they’re ready to purchase within the terms of the agreement.  That is the first profit center, and sometimes, that option consideration could be considerable.  It could be as much as 3-5% of the sales price, or of the projected sales price.  You can actually collect $10,000-$20,000 up front, in cash, in option consideration because that is what the buyer is willing to do in order to rent the property and then have the right to purchase it later on, when they qualify. This is great because this is money you can make now. 

The second profit center is the cash flow that you get from a property.  When you collect rent, for example it could be $1,000, you may have a mortgage obligation to the lender or the seller, of $700.  That is a $300 difference, each month, of positive cash flow that goes right into “hip national bank.”  If you are collecting $1,000 in rent and the obligation each month is only $700, you are making $300 every month.  That is the second profit center and if you accumulate enough of these profit centers you can replace your J-O-B and not have to go to your full time job. Think of it, a legitimate business opportunity where you can walk away from your day job within a couple of years.

The third profit center is when the tenant purchases the property.  Let’s say it’s now a year and a half or two years later and the tenant is ready to purchase the property.  They have been getting their ducks lined up in a row, and now they’re ready to purchase.  They have lending qualification that they are approved to get a loan.  Let’s say they are ready to buy the property.

Let’s say the house is worth maybe $150,000.  You bought this property on a rent-to-own, with the seller, at a strike price of $120,000.  Now that you’re ready to sell the property, the buyer purchased the property at $150,000, which was agreed upon when they rented out the property with the option to buy.  They purchased it for $150,000, which was agreed upon in the beginning.  You sold it for $120,000, which was your strike price or your agreed upon price that you would buy from the seller.  That is a $30,000 difference and you made that in profit as a third profit center. It's really successful when an entrepreneur can start a home based business and be able to realize many profit centers using real estate lease options and lease to purchase homes.

Is a lease option profitable; absolutely, there are three profit centers.  If you add it up, each deal could average anywhere between $20,000-$50,000 plus.  You didn’t have a lot of risk involved in this business opportunity.  You didn’t take out a loan.  You didn’t have your name on a loan.  You didn’t have to put up a lot of cash to get the loan, and your tenant buyer is paying the mortgage while you control it via a lease option.  Lease options and lease purchases are very profitable if you know how to do it correctly. I coach real estate investors to big profit centers and if you like more information on this and other strategies, go to www.GuaranteeProfits.com.