Can I Make Money With Lease Options In A Poor Economy?
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Read Transcript for “Can I Make Money With Lease Options In A Poor Economy?”
In a poor economy, doing lease options isn’t just possible – it can actually be even more lucrative because there are so many people out there who don’t qualify for conventional mortgages. I’ll explain more.
“With the economy going south on us, do you think rent to own and lease option, the niche that I focus on, will stay about the same or will it suffer or get better for us as investors?” – Mike Larpenter in Iowa
Joe: That’s a good question. Right now, as real estate investors in this economy, it’s the perfect storm. There’s so many opportunities right now for us, especially for doing the types of deal I teach, which are all no down payment, no qualifying, no loans. We don’t have to deal with lenders.
Joe: There’s a big credit crunch right now. If you’ve been watching the news, you know there’s a big credit crunch. And it’s very difficult for people to get loans, whether its homeowners, or whether its investors. Well, you don’t need to do any of that stuff if you use the techniques that I teach, with “Subject-To”, “Multi-mortgage”, land contract or contract for deed, and lease option.
Joe: You also have to understand the different hierarchies that are involved. When you’re buying a property, you’re going to buy it one way. When you’re selling a property, you’re going to sell it another way. Mike is actually in my Mentor Program and the way he’s doing it is he’s using the “For Rent Method” that we came up with, which basically says you go to a person who has their home for rent and you ask them, ‘Would you consider selling your home rent to buy rather than just renting it?’ We find that one in three of the people that we asked this say yes.
Joe: We get what we call the lease option memo, which I created, and it’s just a one page lease option agreement that allows us to assign our right to buy to a new lease option buyer. That makes us a principle in the transaction so that we can do it legally without a license. So, we become a principle in the transaction. We then go out and find a buyer for our property and we then assign our right to buy that property to that lease option buyer.
Joe: Usually, the way we do it is we take the lease option fee as our fee and we give the first month’s rent to the seller. We’re in the deal, and out of the deal. We make a quick $3,000 to $10,000, depending on the deal, so it’s a great way to do it.
Joe: If you go try to get an FHA loan, or go try to get a non-conforming loan – there’s so many people with bad credit right now that don’t qualify but would be great lease option tenants because they still have jobs. So what we’re finding right now in this environment is that there’s a lot more people that want to buy a lease option, so we’re not having a hard time filling them at all. The problem that we’re having is being able to keep people in those properties because there’s a lot of people that are losing their jobs, so our vacancy rates have actually gone up even though it’s easier to fill the property.
Joe: But if you’re doing the “For Rent Method”, it’s not really going to have an impact on you because you’re not the one owning the property. You’re not the one who’s going to have to worry about the vacancy. You do need to make your sellers aware of the fat that there’s a possibility that there’s going to be more vacancies because people are losing their jobs. So keep that in mind and make sure you disclose all of this stuff or you explain all of this stuff to your seller because when it does happen, they won’t be upset with you because it did happen – they’ll know that it was coming. Setting expectations is a very important part of this process.
Joe: Anyway, that’s all for this question. Talk to you on the next one.