What you read, especially on a public forum, needs to have at least a bit of real world logic thrown in before you decide to take it as fact.
Getting 5-10% down on a lease/option is pie in the sky dreaming, under most current market situations. Gurus throw out these numbers and newbies spout them back out here, so you hear them alot. Once you put real world logic into play, however, you see how tough that is to get, though it can be done.
Yes, I said that it can be done. I’ve gotten 4-5% down on a L/O before. However, the situation was unique. And I know people that simply won’t take less than 5% down. How do they do it? They WAIT. And wait…and wait…for the right (or wrong, as the case may be) person that fits into that criteria that HAS to do it. In some cases, I’ve L/O’ed out a property TWICE before that investor has one in it. Now, comparing mine to his and including debt service, who do you think made out better?
I see nothing in my post that says NO lease option works. I do them all the time. You again have to simply add in real world logic to the puzzle. Take yours for example.
Current ARV is $113,000. Advertise FOR SALE OR LEASE WITH OPTION. Get calls. Screen calls. Anyone asking about the L/O, you say, “Alot of variables in the L/O. Your monthly payment will depend on your option fee (or down payment). For example, with $1500 down, your monthly payment will be $1000.00 with $200/month going toward the purchase price, if you decide to buy, which would be $115,000.”
To shorten, assume that they take it. They need $1500 for option fee $2000 for first and last month’s rent AND the remainder of whatever month they move in. Minimum of $3500 + remainder of month = your 3-5% down. You could also thrown in a security deposit if you want.
BUT WAIT! IT GETS BETTER!!! Say that YOU have taken it a step forward. You’ve already get a good mortgage broker lined run your credit applications. Once he runs one that will qualify for financing, you get to go back and say to the potentials, “I’ve got GREAT news. I had to do so talking, but you don’t have to do this L/O. We’ve managed to get you financing and all you’ll have to bring is what you needed to put down on the Lease/Option. Isn’t that great?”
As far as taking cash out of this deal, you’re on your own there. What happens when that $10K is gone and you’ve still got bills to pay AND the property is now only worth what you owe? How do you intend on getting out of it then? There is a reason for the 70% rule after all.
And no, you should NOT ever, repeat EVER, “just rent” anything. You can always command more monthly from a lease option over a rental (if done properly) and you’ll always get something as an option fee, which is your cash at time of possession, compared to a security deposit, which you can’t touch.