Today I want to share with you a book I just finished reading called 45-Day Investor, How To Buy An Investment Property In 45 Days Or Less by Kevin Amolsh.
I found this book to be a pretty easy read. Kevin shared several stories from his own experiences and touched on many important aspects of real estate investing like marketing for deals, inspecting a home, and screening potential tenants.
The main focus of the book is explaining a strategy for buying and selling homes called a LEASE OPTION. At its core, a lease option agreement is very similar to a standard lease agreement. However it has the added element of giving the tenant the priority option of purchasing the property within a set period of time.
Typically the sale price is set right at the beginning and you (the tenant) have a certain time period (maybe 2-5 years) in order to exercise your option.
There are 3 main points that you'll negotiation with this type of arrangement.
The Monthly Rent Amount
The Sale Price
The Option Fee
Of course when you are buying/renting the property, you want to negotiate those three points as low as you can. An example might be that the monthly rent is $500, the sale price is $100,000 and the option fee is $500.
Once you have the lease option agreement signed, you are then in control of the property. If the property needs work - you can fix it up. Once the property is move-in ready, you can then advertise the property for sale, for rent, or as a lease option. If you choose to sell/rent the property as a lease option then you have just created as SANDWICH LEASE OPTION.
Now on the sell side of a lease option (as with all other real estate investing strategies), you want to sell the property as high as you can. So the monthly rent might be $600, the sale price might be $120,000 and the option fee might be $1,000. These are just example figures, and the actual numbers will vary depending on your specific situation.
When dealing with these three points of negotiation, you'll have three opportunities to make a spread of money. You might not make it big on all of them, but if you get one or two then you should end up ahead.
One side note about this strategy is that you won't be able to accomplish it if you are renting from me. My leases have a non-assignment clause, which means you can't sign the lease as the tenant and then turn it over to someone else to move in. But if that clause is not in the contract then you have more flexibility.
Some people might be wondering why a owner/seller would allow a lease option. The answer is that it opens up one more way in which their property can be sold. By doing that, they increase the value and or ability to sell the property. Also if the property is need of repairs this might be a way to sell the property when it otherwise isn't in move-in condition.
So that is a quick summary of what the book is about. I’d like to know what you think about this real estate strategy.
Comment below and let me know if you have ever been involved in one of these transactions, either as the seller, the tenant or sandwiched in the middle? What has been your experience?