Investing using lease option is pretty advanced and a bit complex method of investing in real estate. And, when you inject some creativity into this option, the process becomes a little more complicated. Nevertheless, this investment is definitely one of the safest options to do the real estate business because it doesn’t require bigger payments upfront followed by installments which are governed by toughest of regulations.
There are three ways you can consider lease option investment.
Straight Lease Option (Lessor)
Among other types of lease option investment, this is the most common one. In this type of investment, the investor is lessor, owner of the property. In this scenario, investor look for a tenant who would be later interested in buying the property. So, the contract signed between them is regarding giving the lessee right-to-buy. The investor may sell the property to one tenant or he/she may cycle the property through different tenants before one of them finally agrees to buy the property.
Not every tenant, according to this specific scenario, is a buyer. So, you may have to give your property on rent to several tenants until an interested party obtains the mortgage and buy the property. Nevertheless, good screening before finally granting a lease can help you find a suitable tenant-buyer at one shot.
Straight Lease Option (Lessee)
As a lessee, you can use lease option investment to make consistent profits. There could be many reasons an owner may want to grant lease to a lessee investor. One probable reason is that the owners often times have hard time selling a property. Although, the owner may not have any shortage of cash, but it is the property that starts acting like a liability to the owner. This situation serves as good news for the lessee investors as they wouldn’t have to arrange huge upfront payment, and the lease is usually comprised lowest possible installments that run over a long time.
While the lease is granted, lessee can become a landlord. The advantage of becoming landlord is that the lessee can find tenant on higher rent. It is profitable not only on the monthly basis but the lessee also becomes the property owner after specified payment on installment is made.
Lease Option Sandwich
This investment is very much like the one mentioned above but it involves subletting to another lessee. At first, you get the property renting-to-buy basis from a landlord. Then you find a tenant-buyer. In this process, your job is like a middleman without whom the deal doesn’t go through.
Nevertheless, you need to be honest with the landlord if you have intentions of working on Lease Option Sandwich or any real estate investment mention above. Describe your plan to the landlord; every part of it. Not being transparent would open a doorway for legal troubles to come in and start bothering you.