Lease With An Option

It seems that many times something that is a bad situation for some, creates a situation that is good for others. Case in point: Today’s housing market is really bad in many areas of the country for people who would like to sell their homes. Also, many in these bad market areas are in danger of losing their homes because they are having difficulty in making the mortgage payments. The lease with an option to purchase can be a Win-Win situation for both home owner (seller) and buyer or entrepreneur.

Let’s build a hypothetical situation wherein you are in Las Vegas, Nevada. I hear the housing market there is pretty bad. You buy the local newspaper, pick up a free “Thrifty Nickle” and another freebie classifieds. You go to Starbucks, get yourself an Americana, and settle down to a table with your drink, cell phone & classifieds, and start “Dialing For Dollars”. You look for ads in the Homes for Sale by Owner, and look for ads that seem to be urgent. For example: “Owner Desperate”; “No Money Down, Take Over Payments”; “Rent To Own”; “Must Sell”; etc.

You locate a home which the owner has been unable to sell. He must move to Dallas for a new job and he doesn’t want to have two mortgage payments so he is willing to rent. The owner values the home at $125,000 with an existing, non-assumable mortgage of $120,000. Monthly payments are $900.00 (including taxes and insurance). You offer a three year contract to lease the house at $900.00 per month with an Option to Buy for $120,000. You require the right to assign the lease (or sub-lease) and the option to purchase to a third party. You agree to pay $1,000 as option money to include the first month’s rent. Your offer is subject to you finding that third party prior to closing. This will give you a simultaneous closing on both deals which means you won’t have to come out of pocket to close.

Now your marketing begins. You put up bandit signs all over town offering “Rent To Own” and run the following ad in the papers: “Rent To Own Your Future Home. $1,000 per month with 100% rent credit for one year. NO QUALIFYING, Upscale neighborhood – 3 bedroom, 2 bath – Call 433-2424 for details.” Your phone rings off the hook! You find a couple, Mr. & Mrs. Smith, who want to move in right away. Their credit is not too good due to Mr. Smith being laid-off from a previous job. He’s solidly employed now and they anticipate that they can improve their credit situation in a couple of years enabling them to qualify for a bank loan. Your terms are $4,000 Option Money including first month’s rent. They have a two year Option to Buy for $135,000 with rent at $1,000 per month. Full rent credit for one year ($12,000). They have only $2,000 to put down now, so you take a Note for $2,000 payable at $100.00 per month.

THE PROFIT: $1,000 cash now, $100 per month for 20 months with Option Note, $100 per month in lease difference, and $3,000 if they exercise their Option. This kind of deal can be done over and over, in any part of the country and in many cases for MUCH MORE PROFIT.

These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.