Lease Options When Buying

I always chuckle when I hear lease options when you buy. You’re not buying anything. You’re controlling it.

When we negotiate with the home seller a good solution for them, we generally start with the least purchase arrangement.

We will have the right to sublease and sub-option the property,

This is called a sandwich lease option.

There are three profit centers within a sandwich lease option arrangement.

The first profit Center is the difference between the option money collected from the buyer and the option money given to the seller. Generally we can get the seller only $10 and generally we can collect 3 to 5% of the value of the property as option money from the buyer. This gives us money today. The taxation of option money – option money is not taxable income until the option is either extinguished or expires. This is a great benefit for the investor.
The second profit Center is the difference between the rent paid to the seller and the rent collected from the tenant buyer that’s in the property. This is an important cash flow for the real estate investor.
The third profit Center is the difference between the back end, also called the strike price of the option. This is the final sales price. In a traditional sandwich lease option, you will have a double closing: you will buy it from the seller and resell it to the buyer. The difference is your profit.

When you’re dealing with home Sellers and lease options, there is also a lease option of assignment where you temporarily lease with an option from the seller and a sign or sell your paperwork to a buyer for an option release fee. It’s a bit of a misnomer that you are charging a release fee for marketing costs. We generally charge 3 to 5% of the value of the property in a lease option assignment.

For more information about lease options, see selling on a lease option.