Rich Dad Education – Real Estate Blog

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Rich Dad Education Investing Series – Lease Option Strategy

Rich Dad Education Lease Options

Lease Option Strategy

This is the second article in a Rich Dad Education investing series on lease options. The subject of lease options is covered by Rich Dad Education mentors. In fact, the class on lease options is one of the most popular elite trainings offered by Rich Dad Education. Lease options is a strategy that can be utilized by Rich Dad Education students regardless of the amount of current capital that the student has to work with, which in part explains the popularity of the strategy. It is also a strategy that can be used in various market conditions which will ensure its popularity among Rich Dad Education students for years to come.

In the last Rich Dad Education article on the subject of lease options, the concept of the motivated seller was discussed. Locating motivated sellers and having multiple options that can create win-win situations for both parties enhances your ability to potentially get a deal done. Lease options can be an attractive option for motivated sellers and can leave both you and the seller very happy at the end of the deal.  At a minimum, the lease options strategy should be a strategy you are well versed on as you will likely encounter numerous occasions where it can be utilized to benefit both parties.

One of the great advantages to real estate investing is that there are multiple strategies you can choose as a real estate investor to be successful. However, a great many of these strategies fall into a traditional investing approach that require a large amount of capital and/or a good credit score in order to utilize them. While traditional investing has its advantages, some real estate investors do not have the necessary capital or may want to use their investing capital in other ways. The great advantage the lease option strategy provides is that both new investors with little investing capital and experienced investors alike can use the strategy to acquire properties. As the name implies, the lease option strategy has two main components: the lease and the option.

The Lease Portion of the Lease Option Strategy

At its most simplistic level, leasing a house is no different than leasing a car or office furniture. With these types of leases, the customer makes monthly rental payments to the financer for the item in question. With the lease option strategy, a lease contract is created between the property owner and the real estate investor. The real estate investor makes monthly rental payments to the property owner; however this differs from traditional renting as there is a specific time period in which the real estate investor is obligated to make these payments. For example, if the home owner and the investor agree to a three-year lease, the real estate investor is obligated to make payments for the entire three-year lease contract.

The Option Portion of the Lease Option Strategy

The lease portion of the strategy is very straightforward and easy to understand, which becomes important in explaining the concept to prospective home owners. The option portion of the strategy is not grasped as quickly by new real estate investors and can be even more foreign of a term for prospective homeowners with whom you are dealing with. The option portion of the lease options strategy refers to the option you have to buy the home at an agreed upon price on or before an agreed upon date. It is important to stress here that you have an option, not an obligation to purchase the home.

Let’s use a basic example to illustrate the option portion at work:

1)      The real estate investor and the owner of the home agree upon a price for the home – in this example, assume for $140,000.
2)      The real estate investor and the owner of the home agree to a length of time in which you will lease the home – in this example, assume five years.

  • The real estate investor is obligated to make all payments for the length of the five-year lease.

3)      The real estate investor and the owner of the home agree that during any time in the five-year lease the investor has the option to purchase the home for the agreed upon $140,000

  • The real estate investor can at any time purchase the home for $140,000, however…
  • The real estate investor is under no obligation to make this purchase. If the real estate investor does not exercise the option in the agreed upon time period, the homeowner gets to keep the home. The homeowner, however, is obligated during this time period to sell you the home for the agreed upon price – in this example, $140,000.

In its essence, the lease option is not overly complicated and this works to the investor’s favor. Overly complicated strategies can scare off potential homeowners if they cannot understand how they work. Once the lease and the option components of the lease option strategy are understood, then the probability of making a deal increase.

In upcoming Rich Dad Education articles, the lease option strategy will be explored in more detail. Negotiating with prospective homeowners, what should be included in lease/option contracts, and when to use lease option strategies will all be discussed in detail.

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3 responses to “Rich Dad Education Investing Series – Lease Option Strategy

  1. timothylinford2 May 10, 2013 at 4:05 am

    Really great and excellent blog Info.It’s really helpful and valuable contents for commercial real estate investment.Thanks for share with us.

  2. Danny Nguyen November 11, 2013 at 12:08 am

    Nice information and this gives the best idea about real estate investment.

  3. Nickolas July 14, 2014 at 10:37 am

    Very Informing!

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