Real Estate Investing Options - The Lease Option Home Buying Strategy


By Tim C Taylor

One of the most common ways to buy property is through creating an agreement with the seller whereby you lease the property from them, much like you would lease a car, with an option to purchase the property from them at an agreed upon price and by an agreed upon date in the future.

Under this scenario, the homeowner maintains ownership (i.e. the deed) on the property, but you have an equitable interest (control) and the right to sub-lease the property to a prospective buyer and give them the option to buy from you. In fact, by lease-optioning a property.

Here are our six different buying strategies: getting the deed "Subject to"; Land Contract; All Cash; Split Fund; Straight Option and Lease Option.

Please remember that the All Cash and Split-Fund strategies are for ugly, rundown houses only.

When we're considering the Lease-Option offer to a seller, we're only going to make such an offer to higher-end homeowners, people whose homes are in good shape; people with vested interests in leasing and/or selling the house to someone who is going to properly maintain it. In short, we are now focusing on the pretty-house side of the business.

Most sellers who lease option their house are looking for debt relief. They may have had a job transfer, or maybe there was a divorce and neither party can keep the house on their own. Or maybe they're living some-where else, renting, and just couldn't sell the house in time before they moved. However, there are some sellers who do not want to sell the property and lose complete control over it buy handing over the deed of ownership, losing the benefits of being a landlord-like depreciation for their taxes and receiving monthly payments when selling or renting. But they may consider leasing the property to you with an option to buy.

Now, since we're on the pretty-house side of the business, a homeowner's asking price is going to be considerably more than what we would purchase an ugly house for. Even if they may really want to sell that house, we may not be able to buy it at a price that makes sense to us to pay them all cash. However, the benefit of offering the lease-option strategy is that it provides us with an opportunity to offer a higher price to the seller-up to 70-80% of the value of the house (as opposed to only 50-60% through the all-cash buying strategy).

We could also offer 70-80% through the Land Contract buying strategy. If fact, if you had it your way, you'd want to try to see if they'd accept a Land Contract first for the simple reason that you'd be getting the ownership, have control over the property, and you'd have more strategies you could employ to sell the house. But sometimes the seller just doesn't want to hand over the deed or ownership through a Land Contract if we're not buying the home outright.

So we'll immediately flip to our lease option offer and say something like this:

"I can certainly understand that you want to maintain a little more control. I do have a Lease Option program in which you'll be able to maintain ownership of the property, and you and I will have an agreed upon price which I'll buy the home from you at some point in the future. I will make monthly lease payments to you in the meantime, up until, if and when, I exercise my option to buy it from you."

The first thing you do is agree upon a purchase price and the amount of a monthly lease payment. You'll maintain the home in good condition until you exercise your option to buy the house. Then you agree upon a date in which you will purchase the property from the owner. In addition to that, you have the right to sublease the property to a tenant/buyer of our own. At that time, the home will be paid off in full.

A Matter of Trust
The most important component of buying houses through Lease Options is the rapport that you build with the homeowner. If someone has the intent to sell their house and they contact you, you are offering a different kind of creative strategy for them to sell. When it comes to buying and selling houses, most of the outside world only knows that "I find a buyer, and they come in and pay me off at closing in full." That's conventional wisdom.

So if we're offering something outside the norm, like a lease with the option to purchase, it really comes down to trust. You either build rapport to the point where they trust that you know what you're doing and they feel confident that you can produce, or you won't get the deal. If someone is unsure of you, or of your ability to do what you say you're going to do, they most likely aren't going to just come out and say, "I don't trust you." Instead, they'll come up with objections. When the human mind is feeling uncertain about something, it'll create reasons as to why this should not work, why I shouldn't take action, or why I shouldn't trust this person.

Objections are perfectly natural. When someone presents you with an objection, what they're really saying is, "I think I understand, but I'm still missing a piece. I cannot say yes with complete confidence. Please keep talking to me to fill in the information that I'm missing." After you've completely covered their objections in an open and honest manner, they will become comfortable in working with you.

It's the way that you handle their objections that will determine the rapport and trust you build with them. You want to cover the material in a natural tone of voice. If the person picks up on the fact that you are reading a script, then you will lose all their trust. Building and maintaining trust are the most critical parts of becoming successful in this business.

Tim Taylor real estate success coach and author of "Wealth with Purpose" is an accomplished learner. He has been mentored by Robert Kiyosaki, Robert Allen and Ron LeGrand and is now passing on the secrets he has come to know and practice onto select individuals with a burning desire to become successful real estate investors.

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