Yesterday, I talked about 5 advantages to lease option investing.  To be fair, today I’m going to look at some of the risks associated with lease option investing and how to manage them.

The biggest risk in lease option investing is the possibility of the seller having a problem financially, either paying their mortgage or property taxes or some other event that results in a lien against the home.  This can be a problem because it can prevent the seller from selling the home when it comes time to close the deal.  So how do you manage this risk?  First, check to make sure the seller is solid, always pull title work on the home.  Second, record a memorandum of option.  Third, get a signed bank authorization from the seller so you can contact their lender directly to verify payments are being made – or insist on making the payments yourself and sending verification to the seller.

There is also the risk of the tenant buyer you place in the home not paying their rent.  If this happens you need to take the proper steps to evict, don’t dawdle on this, get the process started right away.  The buyer can always catch up, but you can’t make up for lost time if you delay by listening to sob stories from the buyer.  You can manage this risk by doing proper tenant-buyer screening.  Don’t go by gut feeling, do the proper screening to make sure you are putting a solid tenant into the property.

Like any kind of real estate investing there are always some risks involved, but the big advantage you have with lease option investing is that you don’t have to close on the deal.  It’s an option, meaning you have the option to buy, not the obligation.

Here are 5 great advantages to lease option investing:

1. Little to no money down investing.  Whether you are buying from owners directly or through Realtors, there is little to no money down required to buy a lease option
2. Little to no risk.  If you’re buying a house on a lease option, you also maintain the right not to buy it.  This, to me, is the best benefit of lease option investing.  If the market goes up you can buy; if it goes down you can try to renegotiate or you don’t have to buy.
3. No qualifying.  In most cases with lease options you will never have anyone ask you for your income or credit information.  This is done by building rapport with the seller or the Realtor.
4. You can buy them with your IRA.  This is a little more advanced concept but you can buy lease options with your self-directed IRA.  This allows you to get your profits tax free!  You need the right type of IRA and the right IRA management company.  I use Equity Trust.
5. The seller will love you.  The seller will be thrilled that you helped them with their situation.  The won’t be able to thank you enough if you looked for a solution that was a win-win.

These are some of the reasons that I love doing lease option investing.

When it comes to real estate investing and contracts, whether it is lease option investing or subject to investing or any other type of real estate investing, it’s always good to use contracts that include clauses giving you additional levels of protection.  Standard real estate contracts were never really meant for special real estate deals.

For example, one of my favorite clauses to include in my subject to contract is this seller acknowledgment:

We understand that the purchaser is a real estate investor and intends to resell the property at some future date and expects to make a profit.

I make certain that the seller writes their initials next to all of the special clauses in my contracts indicating that they understand the deal.  Lay it all out there. Yes, you are a real estate investor.  Yes, you intend to resell the home later and make a profit.  This is only right and fair, you aren’t running a charity.  Your goal is to help the seller and make a fair profit.

In subject to investing I do not advocate taking advantage of a seller or trying to make an obscene profit.  The deal should be a win-win for everyone.  By having the right clauses in your contract, like this one, the seller is acknowledging that they understand that you are a real estate investor and will be making a profit from this.  There is no point in hiding that.

“What if the tenants trash my home?”

If you are a lease option investor you can expect that many home owners may ask this question when considering a lease option.  If the seller was considering renting out their home anyway then they’ve already handled this risk for themselves.

However, if they ask this question of you here is the response I like to give:

“I can understand why this would be a concern to you, but I want to assure you that I really do screen my tenants carefully.  I am putting not just any tenant in your home – I am putting a future home buyer in your home.  but if anyone does any damage to your home, then I would take care of it.  I am fully responsible for your home.”

If they need further assurance you can let them know that their lease option home is also your investment, so you’re looking out for it very carefully.

Remember, learn to love when sellers raise objections, it means they are seriously considering your offer.  To learn more about lease option investing visit my website.

Whether you are a home seller, a real estate agent or a real estate investor you should be using Craigslist to advertise your home as a lease option or rent to own.  I do almost all my advertising exclusively on Craigslist now and generate tons of good rent to own buyer leads.

It’s free, it’s easy and the competition (at least in my area) is low.  Buyer’s look here though and it has served as a powerful lead generator.

Here are two sample ads I have used:

Ad 1:

$2195/4 BR – Great Home on Rent to Own (Wayne)

A great home in Wayne on a Lease Option/Rent to Own.  Call today to find out more how I can help you.  I help buyers find lease options or contract for deed homes.  Working with buyers that have credit issues is my specialty.  Own a home even if you need some time to improve your credit.  STOP RENTING!  There are no fees to you for my service. Wendy at Keller Williams Realty, you can email me at wendy@wendypatton.com – You will need a minimum of $10,000 to get into a home with this type of transaction.  I look forward to working with you soon to buy your new home.

Ad 2:

$1695/3 BR – 3/2/2 in Great Area – Lease Option (Clifton)

Clifton great home with 3 bdrms, 2 baths, and a 2 car garage.  Nice area.  Lease to own with $7,500 down.  Credit problems ok.  My specialty is working with buyers who have less than perfect credit   There is no fee to you.  Email me today, Wendy at Keller Williams, wendy@wendypatton.com

Both of these ads have drawn solid responses from lease option buyers.  If you are a real estate agent or a lease option investor you can use these ads even if you don’t have a lease option home available yet.  Once you get the buyer leads then you can find a lease option home that works for them.

If you missed last night’s webinar you missed out on a great opportunity to learn how to generate passive monthly income – free.

Fortunately you didn’t miss out on your chance to participate though.  The replay link is now available, you can view the webinar at www.wendypatton.com/blastoff

This is truly a pre-launch opportunity with a short time window to get in before it’s released to the general public.  Blastoff is a fun way to generate passive monthly income.  It’s free to participate and you don’t have to sell anything to anyone.

As soon as you see this webinar you’ll say to yourself, “of course I want to be a part of this, I have nothing to lose.”  Opportunity is knocking here and I want everyone to be able to take advantage of this.  Do yourself a favor and dedicate the small amount of time to watch this webinar – www.wendypatton.com/blastoff

In our current troubled economic times it never hurts to find additional ways to generate income.  But it’s really special when we can find a way that’s fun, easy and free.

I know that there are some people out there who are thinking this sounds too good to be true and so they won’t even bother watching the webinar.  I can promise you that come October 13th when this is released to the general public and you see the massive marketing effort Blastoff makes you are going to wish you had taken the time to watch this.  We are in a pre-launch situation that gives us a very special opportunity to get in at the very beginning.

We are also doing a special encore webinar live on Thursday night at 8PM EST.  You can register for that webinar at https://www2.gotomeeting.com/register/533701803

This is your last chance to sign up for this special webinar event that will help you generate monthly passive income.

I mentioned before that this opportunity is free.  Did I also mention that it doesn’t require sales on your part?  That’s right, you don’t have to get out there and try to sell products or anything like that.

That’s what makes this internet opportunity so special, so big.  It’s so easy!

Sign up now at https://www2.gotomeeting.com/register/993413859.

The webinar is TONIGHT at 8 PM EST.

It doesn’t require people to make big changes in behavior.  It doesn’t require them to buy things they wouldn’t normally buy. No it is NOT AMWAY!  AMWAY costs money and I said this is free.

It’s one of those things that is both so simple but so powerful that once you see it you’ll understand.

When I say it’s free and there are no strings attached and I know it sounds too good to be true, once you see it Tuesday night you’ll understand.  It’s one of those “aha” moments and then you’ll start getting really excited.  As excited about this as I am.

I want to share this with everyone I know because everyone can benefit from it.

I am so excited for this webinar tonight. I want you all to be there to have a chance to be a part of this.

Remember it’s at 8PM EST tonight.  Sign up now so you don’t miss out on this great opportunity to generate passive monthly income.

Sign up at https://www2.gotomeeting.com/register/993413859

All I can say is I understand how you feel.  I love real estate but it has burned many people in the last few years and we are all looking for new ways to make money.  Real estate is great right now, but you might also need, or want, some additional cash flow.  If this is you, read on.

I know of a new passive monthly income opportunity that just blows me away!  It’s just plain awesome.

Wow, because the response from the first email has been fantastic.
Space is limited for this webinar and I can’t promise that we’ll have room for everyone.  You definitely don’t want to wait to sign up for this because it is just too good of an opportunity to pass by.

The webinar is Tuesday, September 22, 2009 at 8 PM EST.

You can sign up at (click on this link):

https://www2.gotomeeting.com/register/993413859

Wow, because this is truly one of those times that opportunity is knocking and we have a chance to act. This is a very special opportunity because we are being given a chance to participate before anyone else.  The general public can’t do it yet.

Imagine if you had a chance to jump into some other opportunities when they first came up.  How ahead of the game you would be once the general public caught on and it exploded in growth.

Imagine buying Microsoft stock when it was first released.

Imagine buying real estate in an emerging market before anyone else knew it was about to boom.

This is that kind of opportunity, but there is one big, BIG difference.  This one is absolutely free.  FREE.

I have already seen it and I promise you that there isn’t some hidden catch.

When opportunity knocks we need to take action and this is definitely the time to do so.

It’s September 22 at 8 PM EST.  Make sure you are there!

Sign up here https://www2.gotomeeting.com/register/993413859

see you then

Greetings from Wendy Patton,
I know that with a headline like that you are thinking, “what’s the catch?”  There isn’t one.

Next Tuesday, September 22 at 8PM EST we are doing a special webinar event on a new opportunity that hasn’t been released to the general public yet, but will be in less than 2 weeks.

You can register now at https://www2.gotomeeting.com/register/993413859

It’s absolutely free.  There are no sales, that’s right you don’t have to sell anything.

This opportunity is a great way to earn passive, monthly income without having to buy any course, without having to sell anything to anyone.  Best of all it’s fun!

You definitely don’t want to miss this webinar.

I don’t want to spoil what’s coming so I’ll only give you a hint.  This opportunity is internet related and is available for anyone – not just real estate people.  It’s a chance for you and everyone you know to earn passive income, without having to change your internet habits.  It’s bigger than Facebook and Twitter combined.

It’s going to go public in less than 2 weeks and BELIEVE ME you want to be ahead of the curve on this one.  Remember, it’s absolutely free.

I know it sounds too good to be true, but I’ve already seen it and I promise you that you don’t want to pass this opportunity by.

Space is limited for this webinar so you definitely want to sign up now.  It’s September 22, 2009 at 8 PM EST.

Sign up here https://www2.gotomeeting.com/register/993413859