Structuring Deals #4: Lease Option
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Structuring Deals No 4- Lease Option
Joe: Hey, it’s Joe. This is zero down structure No. 4. This is lease option. And lease options is what I talk about all the time. You know, that’s how we do the for rent method, we get control of a property using a lease option memo that allows us the right to buy that property on a lease option and makes that right assignable so that we can sell it to someone else at a profit. So we raise the price, sell it at a profit, they give us a down payment, we take the down payment, we take the first month’s rent and give that to the seller and give them a lease option buyer at their full price, you know, with a three-year lease on it and a three-year option on it. And that’s how we make a profit.
Joe: Basically, a lease with an option to buy is a lease, they’re going to rent the property but they have an option to buy that property anytime within their lease. Typically we’ll do a three-year lease option. And they usually pay a lease option fee to do that. We ask them for $5,000 or $10,000 or $20,000 depending on the type of lease option or the price of the property that we’re dealing with. But what they’re getting is home ownership without credit, with a little bit of money out of their pocket and they’re getting a home that they can call their own while they’re there. And then when it’s time for them to move out, they can either exercise the option at the price that they agreed upon, the guaranteed price that they agreed upon, or they can say, no, I’m not interested, I’m going to move out. And then they can move out. And the seller can then turn around and sell it to somebody else and we can do that for them, and we can get another lease option fee. You know, that’s the beauty of doing, of having our own properties. We can, you know, get that property and we can get, you know, a lease option fee.
Joe: I’ve seen people get as many as three lease option fees in a year on one property. And that’s because people would move out. They’d put the lease option fee down, they’d rent it for a few months, and they’d say, oh, we’ve to move. They move out, goes out and finds another lease option buyer, makes another five grand, does it again and again. Now, it’s nice to have people that stay there forever. You want them to succeed and you do your best to help them succeed. But if they don’t, at least you’ve got it covered. You’re vacancy times are going to be covered by the lease option fee, the next lease option fee that comes in and then some, hopefully, we make even more money than that.
Joe: So, that’s a lease with an option. And that’s the fourth step down in the zero down hierarchy. All right. The next one we’re going to talk about is cash assignable deals. Also known as wholesaling. So, we’ll talk about that on video No. 5.