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Residential Investing with a Lease/Purchase

Written by: Michael A. Stazko
2007-06-03 00:00:00

(Editor's Note: Laws and regulations regarding lease/purchase options vary from state to state, please check with a real estate attorney prior to entering into such an agreement.)

One of the most efficient ways to invest in residential real estate is to do a lease/purchase. The reason a lease/purchase is so effective, is because it provides a win-win situation for both the seller/landlord and the buyer/tenant. For the owner, it provides a potential buyer and a tenant that will be willing to take care of the home. For the buyer, it provides the right to purchase the home for a fixed price, and time to save money and improve their credit. Here's how it works.

The owner and the buyer enter into a contract whereby the potential buyer agrees to lease the home for a set amount of time. At the end of the lease, the buyer then has the option of buying the home for the price agreed upon in the contract. In order to secure that price, the buyer pays an option fee up front. If the buyer chooses to buy the home at the end of the lease, he can apply the option fee and any other money saved toward the down payment. If they choose not to purchase the home, the owner keeps the option fee. For the owner, the lease/purchase offers several different ways to make money from the home:

- The goal is to buy the home for 10-20% below market value.

- The monthly rent you collect will exceed your mortgage payment.

- You can write off mortgage interest and other expenses on your taxes.

- You pay down the principle on your mortgage and build equity in the house.

- The price of the home will appreciate.

- If the potential buyer decides not to buy, you keep the option fee.

This is just a basic outline of how a lease/purchase works and the opportunities it presents. It is still a real estate investment strategy that is unknown by many and discussed by too few. For more detailed information, a recommended read is "Buy Low, Rent Smart, Sell High" by Scott Frank and Andy Heller. To apply this investment strategy in a growing real estate market, visit http://www.buyandsellnorthtexas.com.

About the Author

Michael A. Stazko is a real estate assistant and founder of http://www.buyandsellnorthtexas.coma website that provides realtor, mortgage, new home, and real estate investing information for North Texas.

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