Rent to own homes as a real estate strategy is booming right now. People that were foreclosed on or did short sales won't be able to qualify for a traditional loan for years to come. Their choices basically come down to either renting or owner financing.

Carefully selecting buyers greatly increases an investor's probability of succeeding with the rent to own homes strategy. The pool of people wanting rent to own homes is growing every day. Investors have plenty of buyers to choose from.

Rent to Own Homes are Good for Investors

Rent to own homes strategy is different from the traditional flipping strategy. Traditional flipping involves the end buyer taking out a traditional loan to pay off the investor. The Rent to own homes strategy requires investors provide seller financing for a few years. After between from 2 and 10 years the buyer will be expected to obtain other financing to pay back the rent to own homes investor with a balloon payment.

While the seller financing is in place, the investor can be expected to collect a healthy 8% to 12% interest rate. The rent to own homes strategy is one of the most secure investments with a high rate of return that you will find today.

The large inventory of bank owned real estate is depressing house prices but makes it a great time for picking up rent to own homes at rock bottom prices. The rent to own homes strategy sells these houses for a price approximately 10% above market value. Investors profit twice. Once when they sell the house for considerably more than they bought it for and again when they collect an interest rate that's well above the market rate.

How to Select Buyers for Your Rent to Own Homes

People that have had their credit damaged are not all deadbeats. Plenty were paying mortgage payments on time for years until the economic downturn cost them a job or some other temporary financial trouble hit. Those with a history of on time payments and that are back into decent paying jobs are your best candidates for rent to own homes. The key is the set back has to have been temporary and they have to have recovered.

Along with a history of making on time payments, you need to get a decent down payment. The higher the down payment, the more skin they have in the game. The more skin in the rent to own homes game, the harder they will work to stay current with the payments.

The size of the down payment and their credit history are used to determine the interest rate you will charge. Just like with traditional financing, rent to own homes interest rates are based on risk. With a large down payment and only one major incident on their credit report, you'll probably be near the low end of the interest rate scale at 8%. Smaller down payments and multiple credit problems brings the interest rate up to 12%.

Investors have gotten up to 14% interest for rent to own homes but the risk is to high unless you don't mind going through the foreclosure process to recover rent to own homes. That's where the security comes into play. As the mortgage holder, you are in first position if the buyer defaults. You have to go through the foreclosure process but when you come out the other end, you are able find another buyer, sell above market value, and collect another down payment. The rent to own homes strategy is your ticket to success in today's real estate market.

 

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Option lease is one of many ways to invest in real estate. At the highest level is a division between passive and active income. The option lease is a passive income and rehabbing houses is active. A great investing strategy is creating multiple passive income streams that allow the investor as much leisure time as they want.

Option Lease is Superior to Rentals

Although many people consider renting residential property to be passive income, there can be considerable work involved maintaining the property and the ever-dreaded call in the middle of the night to unplug a toilet. It's these types of irritations that make the option lease superior.

In an option lease, the lessee makes a down payment granting them the option to buy the house at a set price before a specific date. Along with the option come additional responsibilities not normally associated with tenants. Repairs and maintenance up to a predetermined dollar amount become the responsibility of the lessee under this arrangement. That makes it easy to understand why the option lease is more passive than traditional rentals.

Option Lease - The Almost Nothing Down Method

Option lease can be achieved with almost nothing out of the investor's pocket and the little that's required is quickly recovered. You don't have to own the house to option lease it to an end buyer. Instead, as an investor, you take out an option lease yourself. You need to do this for less than you turn around and lease it to an end buyer.

For the cost of the option lease (down payment), you take control of the property. Next, you find an end buyer capable of making a larger down payment than you made and able to pay a higher monthly rent then you have in your lease. Now you have a passive income at almost no cost to you as an investor. Each month you collect the difference between what the end buyer pays and what you pay.

When the end buyer exercises their option to buy, you do the same with your option lease. Of course, the amount you've negotiated to pay is less than what you are selling for. Now you have a nice profit with none of your money still in the deal.

Option Lease - Where to Find End Buyers

There are more willing end buyers than you might imagine. The foreclosure catastrophe is creating them all around us. People going through foreclosure have their credit scores destroyed. Additionally, Fannie Mae and Freddie Mac require up to a five-year wait period before they will underwrite loans for these people again. But not all of them are good candidates.

You want to find the ones that went through a foreclosure or short sale that was no fault of their own. People that lost their house when they became temporarily unemployed. Now they are fully employed again and able to make monthly mortgage payments. Other than the foreclosure, they may not have any other serious blemishes on their credit report. Before becoming unemployed they may have regularly made their mortgage payments for years. These people want to own a home but can't get a loan for a few years. The option lease can be the perfect vehicle to make it happen for them today but they don't exercise the option for a few years when they again qualify for a mortgage.

Everyone wins with the option lease.

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