Lease Purchase - The Workings of the Contract

Buyers and sellers are free to write almost any clause they want to into a lease purchase agreement as long as they stay within their state laws. It's always a good idea to have a real estate attorney involved with your first several lease purchase agreements.

With a lease purchase, the seller and the future buyer typically agree on the future price of the house. One option is to set the price at today's market value with an inflation or market escalation clause tied to a reliable and specific index. It's common for the purchase price to be about 10% above market value.

Lease purchase offers the seller the highest sales price, a high option payment, the highest rent, and the least expenses. Lease purchase is the way to go.

The next major step in setting up a lease purchase agreement is establishing the cost of the option. Some sellers include the option price in the down payment if the buyer exercises the purchase option. Most don't. The option price in a lease purchase is substantial. This is how the buyer gets skin in the game and is a major motivator to completing the entire lease purchase.

Lease Purchase Benefits for the Buyer

The buyer in a lease purchase arrangement gets to 'test drive' the house, the neighborhood, and the school district. Depending how the contract is written, the buyer may have the price locked in for years in a rising market. This isn't a bad thing for the seller because the more value the buyer has in the property, the more motivated they become to complete the lease purchase process. If the market falls to far the buyer will walk away.

Although the option money doesn't usually apply towards the down payment, a portion of the rent normally does. This benefits both the buyer and the seller. In today's world, many people find it almost impossible to save money towards a down payment. Having part of the rent go towards the down payment is a way of forcing a buyer to make it happen. For the seller in a lease purchase, applying a portion of the rent towards the down payment is no big deal because the rent is set above market value. It's all upside for the seller. If the buyer doesn't execute the purchase, the seller keeps all of the above market rent. If the seller does go through with the lease purchase, the seller has sold the house at an above market price and collected the option money up front.

While technically the buyer is required to make the purchase in a lease purchase agreement, it's important for the seller to be reasonable. If the buyer walks away, it's likely because they can't afford to make the purchase or can't qualify for a loan. The seller may feel they want to compel the buyer to complete the purchase but it's probably unreasonable to do so. It's better to accept that you've made a bundle in option money and high rent and just start the lease purchase process over again with a new buyer and new option money.

Learn from my more than 20 years of experience in the real estate investing business including specialized lease purchase training at wendypatton.com.

In this blog, I'll answer the question how to get a lease by explaining how to use craigslist and scouring neighborhoods to find motivated sellers that you can bring into a sandwich lease deal.

How to Get a Lease Using Craigslist to Find Motivated Sellers

Craigslist has nine subcategories under the main category of Housing. When working at how to get a lease, you want to be active in 'apts / housing' and 'real estate for sale'. The apts / housing subcategory is where you find landlords advertising houses for rent. This isn't intuitive because you're looking for motivated sellers, but they exist in this subcategory. How to get a lease in this category involves looking for key words in the advertisement indicating the owner is having trouble finding tenants. Common indicators are words like 'rent reduced', 'no deposit required', 'second month free', etc.

When lease option students begin using this technique, a second question I often get is assuming they figure how to get a lease, how will they possibly rent it for more than the current owner is asking for? What you need to remember is with the lease option, you are going after a different audience. The second part of the sandwich lease are people that want to buy a house but can't qualify for a traditional loan. These are not people that want to rent - more about this in another blog. Right now we're concerned with how to get a lease.

The second category on craigslist is 'real estate for sale'. Discovering how to get a lease in this category involves the same technique, looking for key words in the advertising indicating they are motivated to sell. Words like 'price reduced', 'NEED TO MOVE', 'ALL OFFERS CONSIDERED', etc. Notice how some of the ad headlines are in all capital letters. These are people doing everything they can think of to grab your attention. The other clue you are looking for are owner financed houses. These people are more sophisticated sellers and will understand what you are trying to do with a sandwich lease.

The next step in how to get a lease is nothing more than starting to make phone calls to these people and explaining your proposition. However, there are many ways to find motivated seller when you are trying to figure out how to get a lease. Another is scouring neighborhoods for abandoned houses.

How to get a lease can be done by driving around looking for abandoned houses

How to Get a Lease Scouring Neighborhoods for Motivated Sellers

The picture I selected is a little over the top when it comes to learning how to get a lease by looking for abandoned houses but I wanted to grab your attention. How to get a lease for abandoned house is going to involve properties in better shape than this one. But you'll be looking for places needing minor repairs, the landscaping is in bad shape, and there are old notices tacked to the front door. Places that people can move into with minimal repair but that are clearly abandoned.

Once you find an abandoned house, the next step in how to get a lease is finding the owner. This is done by searching the public tax records. Most counties now have these online. You need to Google something like 'Oakland County tax records'.

I hope this blog helps you find a couple of more ways about how to get a lease that you can turn into a profitable sandwich lease.

Also, take advantage of my Free Book Offer and Video Training for finding motivated sellers and to help you find more ways about how to get a lease. There is valuable content in all of these resources I'm providing to you free. By taking advantage of them, your chances of learning the best ways of how to get a lease improve greatly.

Please visit often and leave comments below.

So, I went looking at short sales. Homes that the owner is underwater with the mortgage and is asking the bank to take less than what is owed as full repayment of the mortgage.

Reasons Short Sales Have Potential as Option Homes

Short sales often cost banks less than foreclosures. Clearly, the less you can buy houses for the more you can earn converting them into option homes. It took banks some time to realize it's beneficial for them to allow short sales more often than foreclosing on the properties. One reason you can acquire short sales to convert to option homes is that the bank never takes possession of a short sale. They don't have to pay property taxes or maintain it. Now couple that with the fact that the seller won't receive a penny from the sale and you have a formula to buy short sales at a very low cost to turn into
option homes.

Option homes are one of, if not the best, ways to maximize your real estate investing dollars

Some short sale negotiators I know tell me that recently they've had 80% to 90% of their short sale offers accepted. All of this should be telling you that it's time to look at short sales as a source for option homes investing.

Tips for Converting Short Sales Into Option Homes

First of all, don't get bogged down doing the short sale negotiation. You're in the option homes business not the short sale business. Every new short sale requires that the sellers be educated in the process and requirements. Then the seller has to be handheld to collect the needed documentation. And then multiple negotiations happen with the bank. You need to stick with the option homes side of the business and let someone else deal with the short sale.

Not all short sale offers will be accepted, so you want to structure your purchase offers in a way that maximizes the profit and cash flow for your option homes. One way you do this is by requiring the inspection be performed only after the bank accepts your offer. No point in sinking money into the option homes deal until you know your offer will be accepted.

Same thing with any earnest money deposit you make. To maximize the cash available for other option homes deals, you want to put in the minimum cash you can at the front end of a short sale. Even with minimum in, it's reasonable to require that the check not be deposited until the bank accepts the short sale offer.

Now it's time for you to take action by making a few short sale offers to grow your option homes business. But first, you will want to take advantage of these other free resources.

See my article and quick video on Getting Your Real Estate License for Real Estate Investing. Also, take advantage of my Free Book Offer and Video Training for finding motivated sellers to make the most of your option homes investing. There is valuable content in all of these resources I'm providing to you free. By taking advantage of them, your options homes business will prosper.

I hope you enjoy reading my blogs about option homes as much as I enjoy bring information about options homes to you. Please visit often and leave comments below.