Please Explain How Lease Options Work?

I am new to REI, and recently made contact with an investor that wants me to find lease with option to buy properties for him. How does the lease-option process work? Exactly what is a lease-option, and how would I go about finding leads? Thank you in advance for your help.

Howdy Canbedone:

With a lease option you control real estate with a smaller amount of down-payment in a lot of cases. When you lease a property you usually put up the first months payment and a security deposit of half a months rent or more perhaps. Just add an option to purchase the property at a later date say within 3 years at a set price and you have control of the property. You do not actually own it but what you want to be able to do is to lease it to someone else at a higher rent and then sell it to them in the future at a higher price that your option. A lot of times the person leasing the house was trying to sell but could not for some reason and decided to lease it for now until times are better or they can afford to keep it vacant again or whatever reasons. There are some pitfalls to the program but with limited capital invested if any at all you can just walk away from the lease agreement if absolutely necessary without too much harm.

A good way to find lease option deals is to look for property for lease. Ask why they are leasing and would they consider selling in the future. Avoid other lease option investors that are doing what your investor is doing. The last time I tried this method I found plenty of lease option deals in the newspaper but they were investors too and there was no room to make money.

Hope this helps explain a little about the process.

[color=Purple][b]Thanks so much! You’ve been very helpful in clarifying how lease-options work.

I am new to investing as well and although it’s something that has been in the back of my mind for years, I just recently decided to pursue it.
I’ve been told that lease options are a good area to concentrate on when you don’t have equity to put down and getting financing is difficult.
I understand the basics of lease options but it seems that the sellers would be reluctant to let you sub-lease the property out when they’re still the legal owners of it…
Appreciate any advice or help,

Well that all depends on the motivation of the seller. Any books or anything you read about these kind of deals talk about how motivated the seller is. If a seller is being relocated, and maybe has little equity in the house currently, lease option is a great way to help the seller out of a house by taking over the property, and paying their mortgage,taxes,and insurance. I had a couple fall into that niche perfectly, they didn’t see the light at first, but when I offer 10K more then they were looking for and explained that for just holding the note with me for 5 years they could make 15K more then they would cash out, they really were excited to enter into the deal. I was excited too since this house has raised in value at over 7% a year for the past 3 years, at a rate like that, the house will be worth over 100K more then it is currently, and I could stand to make a great profit from the house. So it works with some, not with others, that’s the story of Real Estate, how do the sellers needs need to be fullfilled and does it my fiancial sense for all involved!

Hope that gives evyone more food for thought!!

Good Luck,
Paul Ruppel

thanks Eclipse_man…figured there was a logical explanation to it; just could’nt see where I seller would want to allow someone who doesn’t even own the property yet to lease it to something they (the sellers) don’t even know or haven’t even met…apprec the info and explanation…