Rich Dad Education – Real Estate Blog

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Rich Dad Education Investing Series – Using Lease Options with Prospective Buyers

Lease Options

This is the fifth article in a continuing Rich Dad Education Investing Series covering the subject of lease options. The area of lease options is just one of the numerous trainings offered by Rich Dad Education. Through these elite trainings, Rich Dad Education students are given the ability to transfer their knowledge as quickly and as profitably as possible to the real world. With this goal in mind, Rich Dad Education trainings are designed to teach students relevant strategies and to also give students a blueprint on how to implement these strategies from the moment they leave the classroom.

Becoming financially successful using the lease option strategy involves far more than simply learning what lease options are and how they work. Successful real estate investors that use lease options are also successful at marketing, interacting with people, and in understanding their local markets. These are just a few additional skills that are needed in order to reach your full potential as an investor who chooses lease options as an investment mechanism. While these skills aid your success in the realm of lease options, they also help the Rich Dad Education student in their journey to become successful at other real estate investing strategies.

Using Lease Options with Prospective Buyers

In a previous article in this Rich Dad Education Investing Series, the subject of motivated sellers was discussed.  Motivated sellers are classified as sellers who need to sell their home because of various circumstances that arise in their life. As a lease option investor, you can provide motivated sellers real solutions to real-life problems.  For example, a motivated seller might have to move out of state. After listing their house with a Realtor for a long period of time, their home might still remain unsold. As time is ticking down the seller of the home might be faced with a situation where they feel they have to:

  1. Drastically cut the price to move the home or;
  2. Attempt to rent it out and manage the rental from out of state.

Neither of these options are going to be enticing for an individual who wants to move onto the next stage of their life. As a lease options investor you have the ability to step into this situation and offer the homeowner a better solution. You can step in and offer to lease the home for five years and agree to take on maintenance and repairs for the home. You also agree that during any point in this five-year window you have the option to purchase the home at an agreed upon purchase price. Let’s say that the homeowner’s monthly mortgage payments are approximately $1,500 and the home has a value of roughly $200,000. Let’s say you offer to make their monthly payments of $1,500 and agree that if you exercise the option to purchase the home, you will pay the owner the $200,000 they are asking for. Providing a motivated seller a way to get out of their problem is going to catch their attention. If you have to get the deal done with an owner that is on the fence, then some level of up-front money will likely seal the deal.

Each real estate investor brings with them different levels of negotiating skills. Depending on your negotiating skills you might be able to negotiate lower monthly payments, a lower lease option price, and no up-front money in the deal. With good negotiating skills you can still leave the owner happy to do the deal as you are providing them a real solution to their problem while pocketing a little extra for yourself.

Now that you have successfully completed a lease options deal you can turn around and use the power of lease options to lease the home to a prospective buyer! Just as some individuals find themselves in situations where they are motivated to sell, others find themselves in situations where they want to own a home but have circumstances that are providing roadblocks to obtaining a traditional loan. Through your marketing efforts, you can attract these individuals in similar manners that you attract motivated sellers. Individuals that want to own their own home are easy to find through simple marketing efforts.

For individuals who want to own a home but cannot obtain traditional financing, the prospects of leasing to own is going to be very intriguing. There are a couple of key things you need to do in setting up the parameters of the lease with these new buyers:

1) When setting the time of length of the new buyers lease, you always want to make it a shorter lease compared to the amount of time you originally leased the home. For example, if you agreed to a five-year lease with the motivated seller, you will want to target a two- or three-year lease with the new buyers.

2)  The amount you charge for rent on the monthly lease should naturally be higher than the amount you agreed upon with the motivated seller. Your knowledge of the local area will be valuable in helping to determine what you can charge for the monthly lease. In negotiations, don’t hesitate to ask for a premium on what the average rent is as you are giving them the ability to own the home.

3) In negotiating what price the new buyers can purchase the property for during the time of the lease, calculate what the home should be worth at the end of the lease. If homes in the neighborhood have been appreciating at 5%, then make the appropriate determination on what you should ask for the new buyers to exercise their option.

4) Be sure to ask for an up-front down payment. This up-front down payment can be deducted from the price of the home should the buyers exercise their lease option, but is not-refundable if they do not.

In using lease options to purchase and to sell a home, real estate investors can find themselves doing deals where they put little to none of their own money into a deal and still make substantial rewards.  In the next Rich Dad Education Investing Series article we will look deeper into the negotiating process with motivated sellers and prospective buyers and give examples and tips on how to maximize your profit when negotiating with both parties.

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2 responses to “Rich Dad Education Investing Series – Using Lease Options with Prospective Buyers

  1. Pingback: Options Trading News | OptionsHouse Promo

  2. Pingback: Rich Dad Education Investing Series – Lease Options: The Initial Visit | Rich Dad Education - Real Estate Blog

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