Today, we’ll be discussing zero down structure No. 4. which is a lease option. I talk about lease options all the time because that’s what we do for the 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.
The memo also makes that right assignable so that we can sell it to someone else at a profit.
So we raise the price and sell it at a profit. We receive a down payment, take the first month’s rent and give that to the seller as well as a lease option buyer at their full price. There’s a three-year lease and three-year option on it. And that’s how we make a profit.
Basically, a lease with an option to buy is a lease they’re going to rent the property but 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.
And what they’re getting is home ownership without credit. With a little bit of money out of their pocket, they’re getting a home that they can call their own while they’re there. And when it’s time for them to move out, they can either exercise the option at the guaranteed price that they agreed upon or say, “no, I’m not interested, I’m going to move out.”
Then they move out. And the seller can then turn around and sell it to somebody else or do another lease with an option for them. And we get another lease option fee. That’s the beauty of having our own properties. We can get that property and we can get a lease option fee.
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 and rent it for a few months, then say ‘oh, we’ve to move.’ And they move out.
You then go out, find another lease option buyer and make another five grand. You do 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. Your vacancy times are going to be covered by the lease option fee. The next lease option fee comes in and then hopefully, we make even more money than that.
So, that’s a lease with an option. And that’s the fourth step down in the zero down hierarchy.
