Those who know me know I LOVE lease options…and I especially love the lease option flip.
What is that, you ask? Is this some new, secret strategy? No, not at all. It is, in simplest terms, a lease option assignment.
The assignment is by far the easiest of the lease option strategies and requires the least amount of investment and risk in order to do the deal and profit. An assignment is when we negotiate the deal with a seller and contain all the terms of the transaction within the contract. We then assign (which means to sell) the contract to a third party. This can be the tenant/buyer, another investor, or even the original seller.
Here's one way to flip a lease…step by step…
Step One: Find A Seller
Find a motivated seller who is willing to sell their house with a lease option. I have my best success marketing to “tired landlords,” expired listings, and “for sale by owners.” Use newspaper ads, bandit signs, websites, and craigslist ads. And don't forget your local REIA.
Step Two: Sign the Paperwork
Sign a Lease with Option to Purchase with the seller. I use a simple, one page document which allows me to purchase and/or transfer my interest to a third party. Make sure you have your documents reviewed by your real estate attorney.
Step Three: Find a Tenant/Buyer
Find a qualified tenant/buyer who has the money for the option fee and has a good chance to get a mortgage in 6 to 12 months. I have used bandit signs, classified ads and flyers – all with great success. Now I use leasing agents to find my tenant/buyers. This is working quite well.
Step Four: Close with Tenant/Buyer
I use a standard, realtor approved Residential Lease and a SEPARATE Option to Purchase. The agreements are with YOU as the seller/landlord. Collect the full option consideration, first month's rent, and security deposit (if any).
Step Five: Assign the Documents to the Seller
Close the deal with your seller by assigning him or her your tenant/buyer lease and option to purchase agreements. The seller gets the first month's rent and you keep the option consideration. If you used a leasing agent to find your tenant/buyer you pay the commission from your option consideration and keep the difference.
Now…rinse and repeat!
So, there you have it, you've found a property, got it under contract, and assigned your interest. And THAT is how you flip a lease (and option)!
What experience have you had with lease options? Do you use this as an investing strategy? I’d love to hear your thoughts and opinion below