A lease with an option to buy involves leasing a home from a seller who might not be able to sell it or rent it otherwise. It allows the investor to rent it and then buy it, without having to use money or credit. I was able to do this over and over again. I have bought and sold over 600 lease option (rent to own) homes. The technique of lease with option to buy is what helped me get going “full steam ahead” in the real estate business.

Investing using the subject to technique involves having the seller sign the deed of their home over to the buyer “subject to” the existing mortgage. The seller keeps the mortgage in their name, but the buyer/investor owns the home and is responsible for the payments of the mortgage. The investor does not have to qualify for a new mortgage using this method. The technique of subject to allows the seller to move on and get out from underneath their payments and the investor the ability to buy many homes without using his or her own cash or credit.

Both methods, when done properly, should result in a win/win situation for the buyer and seller. I only teach my students how to use these two methods in a fair and ethical manner. When all parties are treated fairly everyone wins and things work out for the best. I truly believe this is the only way to invest in real estate!

As an investor you must determine your bottom line to do a deal.  What is the profit you would expect, minimally, to do a deal on a lease with option to buy or Subject to investing technique?  For each type of investing technique you might have a different profit amount required.  For instance, I will accept less for a rehab than a lease option, because it can be completed and out of the deal within a few months, whereas a lease option I will be in the deal for 12-18 months or more.   Is your profit range for a deal $10,000, $50,000 or $300,000?   Once you determine your bottom line then you can determine what you will and will not do for a deal.   For instance, if your bottom line is $20,000, and a deal comes along that will only provide you with $18,000, then you need to pass that deal up, or negotiate more to get you your bottom line, otherwise, it is not be a win/win with the seller and yourself.   You also might be able to wholesale it to someone else who has a bottom line that is less than your bottom line, but you will need to learn to walk away from deals that don’t work for you.

To learn more about determining your bottom line take a look at my book Investing in Real Estate with Lease Options and Subject-to Deals.

Sandwich Lease Option

A Sandwich Lease Option is a technique that has been used for many years but the technique has been overlooked by many. To me it is the hidden gem of the real estate investing world. When executed properly, you the investor will make money with the option fee, the back end and a monthly cash flow.  This means you get paid THREE ways.  Essentially, you lease a property with an option to buy it, and in turn you rent it out to someone else, also granting them an option to buy it.  You are in the middle, hence the reason we call it a “Sandwich Lease Option“.

Here is a picture of a sandwich lease option.   Note: On a lease option only the seller is obligated to sell.  The buyer has the “option” or privilege to buy, but not the obligation.

And where is the meat in a sandwich?  In the Middle.  The meat is the best part of the sandwich lease option.  This is where we want to focus.  How can we make the sandwich more profitable (by getting more meat in the middle)?

Here are some of the terms to negotiate when buying (with the seller) and selling (with your buyer):

• Monthly Fee (Rent)
• Length of time (Years)
• Price
• How much of the monthly fees (your rental payment) goes towards the purchase price

When you negotiate good terms with your seller you are making your sandwich lease option better; like adding a piece of cheese (this is more profit to you).                                                                                                                                                                                                        

Cooperative Lease Options

Cooperative Lease Options are a technique that I recently began teaching my students. A Cooperative Lease Option A.K.A Wholesale Lease Option is similar to a Sandwich Lease Option except the middle (meat) is removed up-front.   Think of it as a sandwich where the meat has been removed. I know, many of you are thinking what is a sandwich without the meat?  In other words how will you benefit from the deal?

Basically, you still find the seller and after you have the contract and the option to buy, you ‘take the meat’ and assign your option to purchase to a buyer.  In this scenario, you only get paid in one way (the assignment of your option) but you get paid today.  You don’t make as much on the deal, but you are done with it.  It is quicker and easier money then a sandwich lease option.

It is important to remember when doing a Cooperative Lease Option NOT to find the buyer for the seller.  It might sound like you are doing that and in essence you really are, but you can’t describe it that way or explain it that way to your buyers and sellers.  You are the buyer and you are “assigning” your contract to a buyer for a fee from them to buy your contract.   For example, I usually take the buyers option fee as my assignment fee for a wholesale lease option.  This can be anywhere from $2500-$10,000 in my area of the country. Can you use an extra $5000 this month? To find more information on becoming a Realtor you can check out my article on getting your license HERE.

Rapport building is very important and key because you’re asking someone to give you control of their house with little to no money down in both lease options and subject tos. Getting the seller to feel comfortable with you is the most important technique to learn for these techniques.  This is equally true with Realtors.  If the Realtor likes you, they will translate their like and trust of you to the seller for the lease options.

Here’s a tip: When you’re in the seller’s house, tell them what you like about their house, not what you don’t like.  For example, perhaps you’ll see something unusual, like older wood work or a nice fireplace.  Ask the seller about it.  If you see that the seller likes golf, talk golf whether you like golf or not.  Always focus on the positives, the interesting things.  People like to know that you like their house, and that builds immediate rapport.   Sellers will give you a better deal and be more likely to negotiate if they like you.

Check out Chapter 06 of my book Investing in Real Estate with Lease Options and Subject-to Deals: Powerful Strategies for Getting More when You Sell, and Paying Less when You Buy to learn more about negotiating the deal and other steps to buying on Lease Options and Subject Tos.

In a rent-to-own sale the seller allows you, the future buyer, to live in the home for a while as a renter before you actually purchase the home from them. Before you move into the seller’s home as a renter, you and the seller would agree on the sale price and other terms. You would pay the seller a non-refundable option fee. Both you and the seller would sign some paperwork covering the lease, the purchase and the option

Once you have been approved by your seller, you have a few little details to take care of. You know things like moving into your new house, signing contracts and so forth. Here are a few tips from my book Rent-to-Buy that will help you.

Create a Folder for Your New Home

I strongly recommend that you get a file folder and keep all of your documents in it. This folder should have copies of all your contracts and paperwork. You should also keep copies of all payments, receipts, etc., in the folder during the lease period. An important part of being able to get a mortgage at the end of the rental period is having organized documentation to create a strong paper trail.

Draft All Documents: Rental Agreement, Sales Contract, Option Agreement, Memorandum of Option and Affidavit of Liens

Prepare the contracts before you move in so that you have everything ready to go. All of these contracts are available in my companion course, ‘Rent-to-Buy’, which is available in the “Wendy’s Store” section of www.WendyPatton.com.  I go into detail on this in my course with an audio step-by-step instruction CD to assist you.

Check if Taxes Have Been Paid

You’ll want to make sure the seller is paying their property taxes and that they are current. If the seller has a mortgage, there is a good chance that the lender requires an escrow account to cover property taxes and insurance. In this case, you’ll probably be able to verify that the taxes are current when you verify that the mortgage is current. However, not all mortgage lenders require an escrow account, and some sellers don’t have mortgages. In this case, you’ll need to verify from another source. Usually, you can check with your local Tax Assessor’s office (or whatever it is called where you live) to make sure the taxes are current. Many assessors’ offices now allow you to do this online. Otherwise, you should call the office.

Sign All Documents

It’s time to meet with the seller and sign all of the documents. Typically, you would do this before you move in. This allows you to lock in the deal and prevents the seller from finding another buyer. You would pay the option fee to the seller at the time all documents are signed. You might pay the rent and security deposit to the seller at this time as well or when you take possession of the home. Bring a pen or two!

Rent to Buy is currently available.  Rent to Buy is your hands-on guide to buying your next home as a rent to own.  You can get your next home NOW without having to qualify for a mortgage until later.  This is the solution you need until you can qualify for a mortgage.  This is the solution home sellers need because they can’t find mortgage qualified buyers.  Rent to Buy is a great option in our current real estate market.  Check it out!

Motivated sellers are out there in every city, every town, and every state.  Finding them isn’t as difficult as it might seem – if you know which techniques work for attracting the attention of a seller who wants to work with you on a lease option or subject to.

There are different circumstances and situations in the lives of people that motivate them to need to sell their home.  These reasons can include a job transfer, bankruptcy, foreclosure, divorce or upgrading to a bigger home.  The final factor likely to affect sellers’ level of motivation is the state of the real estate economy itself. You have to know what’s happening in the real estate market in your area or in the area where you are interested in finding your investments, and the best place to begin is at the official website for the National Association of Realtors.

The kind of motivation you are looking for is not someone just wanting to sell their house but someone who either is motivated to get rid of their good debt or their bad debt. Here are 3 out of 16 techniques listed in my book Investing in Real Estate with Lease Options and Subject-to Deals that have worked for my students and me over the years:

1. Tear-off flyers in local drug stores, convenience stores, party stores – wherever you can get them posted.   These tear off flyers can say the same things as the signs and ads.  The tear off parts should have your phone number, website if you have one, and a short statement – We Buy Houses.
2. Out of state owners – There are services in many cities that allow you to find all out of state owners, or owners where tax bills are sent to addresses not at the property (non-owner occupied).    Out of state owners are far away from their property and many times want to get rid of the far away headache and move on with their life.  Also, they may not really know what the current market is anymore and many may not even care.  They may simply want to get rid of that unwanted home in a far away place.
3. Real estate investor clubs always have other investors with homes that they haven’t sold or want to sell.   Network and let others know what you do.  I have bought several very good deals from other investors, either because they had their hands full at the time with their own deals, or they were out of their area.  Some investors only wholesale their properties.   Wholesalers buy low and then resale low.  You should be a member of a local real estate investor club and be regularly attending meetings.  It is one of the best places to network.   Check out  The National REIA website for a group of local real estate groups in your area.

You can learn all 16 techniques to finding motivated sellers in my book Investing in Real Estate with Lease Options and Subject-to-Deals.

November 19-22 I will be holding the “Soft Market Investing” Boot Camp. This is four days of intense Real Estate Investing training during which you’ll learn:

• What strategies work best right now in today’s market
• How to maximize your profit potential when using these investing strategies.
• Strategies you’ll be able to implement the very next day!

The training offered at this event will be, without question, some of the best you have ever been a part of at any real estate event. You’ll walk away with the ideas and concepts that can put tens of thousands of dollars in your pocket! This Boot Camp will also be saturated with strategies and concepts that work in today’s market. As most of you know, I specialize in Lease Options and Subject To’s. Both of these strategies will be covered in detail during the Boot Camp!

And, given the current real estate market’s condition, this couldn’t be a more perfect time to attend the “Soft Market Investing” Boot Camp.

The first Boot Camp was held June 26-29 and was sold out! Hurry up and Register….Seats are filling up fast!!

Click Here to Register

Are you like many others who have no idea what a Rent-to-Own is? My new book Rent to Buy discusses what a Rent-to-Own is and much more. Rent to Buy offers a hands on guide to buying a home on lease option from the home buyer’s perspective as well as the real estate agents who serve them.

Before we can look at why we would want to buy a home and how to buy a home on a “rent-to-own” basis, we first need to understand what renting-to-own is. A rent-to-own can also be referred to as a “Lease with an Option to Buy,” a “Lease Option” or a “Lease to Own.”  In this book we will call it a “Rent-to-Own”, but these words can be used interchangeably for the most part.

In a nutshell, a rent-to-own sale means the seller is allowing you, the future buyer, to live in the home for a while as a renter before you actually purchase the home from them.

In a rent-to-own transaction, before you move into the seller’s home as a renter, you and the seller would agree on the sale price and other terms. You would pay the seller a non-refundable option fee. Both you and the seller would sign some paperwork covering the lease, the purchase and the option (which gives you the right to purchase the home at a later date) and in approximately one to three years, depending on your agreement, you have the option of purchasing the home.

I say you have the option of purchasing the home because it is important to understand that in a rent-to-own transaction you, as the buyer, are not obligated to purchase the home at the end of the rental period. The seller, however, is required to sell it to you should you choose to buy it. That sounds pretty good, doesn’t it? For a more in dept look  at Rent-to-Own’s check out my new book, Rent-to-Buy.

In today’s real estate market mortgage-qualified buyers can be a real challenge to find which makes it difficult for us real estate agents to make a living.  In reality there are lots of would-be buyers out there right now if you are a little more creative.  You see, the real hang up comes with the mortgage-qualified part.  Lots of would-be buyers out there (in fact, I would say the majority) can’t qualify for mortgages right now.

Most real estate agents turn these people away saying, “I’m sorry, I can’t help you.”

But the truth is, if you are a little bit creative, like I teach in my book Rent-to-Buy, you can turn all of those buyers into full commissions by finding them a lease option home.  Not only that but you can collect buyer leads from other agents who turn away those not-mortgage-qualified buyers too!

How do I do that?  I have this letter that I send out to other agents called my garbage or $500 letter.  It goes something like this:

Dear Agent Name,

Have you ever had a potential buyer come into your office and not be qualified to get a mortgage?   Don’t throw away their information.  Refer them to us, and if we end up renting to them, we will send you $500!

So, is it a piece of garbage, or $500?

Please call us at (phone number) to get more information, but don’t throw away your potential buyers that we might be able to work with.  This offer is valid until (date).

Sincerely,

Your name

Very simple and straightforward, but very powerful.  Most real estate agents turn away non-mortgage qualified buyers.  Get them to give them to you instead and they’ll see a payout instead of a lead that is garbage.

The buyers are the gold in today’s real estate market.  If you are creative and help non-mortgage-qualified buyers find lease option homes you can earn a TON of money in commissions right now.  For more on how to do lease options as a real estate agent and how to help buyers find homes check out my new book, Rent-to-Buy.

Let me give you an example situation where you as a real estate investor, or if you are a Realtor, when you can suggest a lease option to the home seller.  As a real estate agent our responsibility to our home seller is to get their home sold, and sometimes conventional methods just don’t work.  That’s when we can offer the home seller the alternative of a lease option as a means to get their home sold.  Remember, any time a seller suggests that they might have to rent their home if they can’t sell it you know they are prime candidates for lease options.

So let’s look at an example situation where a home seller might be a good lease option candidate:

A doctor has built a new home for himself.  His old home is worth $200,000 and he owes $125,000.  He has $75,000 of equity.  He is not behind on payments, and he did not need the $75,000 in cash to build the new home.  His old home is now sitting vacant and it hasn’t sold yet.  He qualified for both house payments at the bank and he can technically afford both, but who wants to make an extra house payment for a home that’s sitting empty?

Although he is motivated to sell because he’s paying out of pocket every month to own a vacant property, this type of seller isn’t going to just walk away from the home.  No way is he going to give up all of his $75,000 in equity and no way are you going to pay that much cash out of pocket.

When you lease option this house, he gets most of his equity back – although it won’t happen until the lease option buyer you find closes on the property.  The deal might work like this: You, as the real estate investor, option the property for $190,000 and make payments to the seller that equal his total mortgage payments with 100% of that amount applying towards option credits (let’s say $1,200 per month).  You then sell the property to a lease option buyer on an 18 month lease option for $200,000 with a monthly rent of $1,350 (which is the going rate in rent for that area).  You, as the investor would make about $34,000 on the deal.

The doctor will get the remainder (less real estate commissions) of his equity back plus he doesn’t have to worry about property management or a home sitting vacant.  Anyone who has had a home sit vacant knows how stressful it can be a what a relief it can be to not have to worry about that.