Lease Option Real Estate Investing Provides Investors With Flexibility

Lease option real estate investing is one of the best ways to invest. It can be one of the most flexible techniques that can be used in pretty much all stages of the real estate cycle. Here are some reasons lease option real estate investing is so ideal:

• It can be done in most stages of the cycle. In an up market, there will be plenty of demand from tenant/buyers wanting to get into the property. In a down market, you are protected from the downside of the market if you have used a lease option to get into the deal (sandwich lease). This will be explained later on this page. 
• It requires very little money. The cheaper you can negotiate the option consideration (deposit) the less expensive these deals are going to be. 
• It requires no credit. Since this is just a lease, credit is not needed for this type of deal. 
• You will almost always have a large potential market to lease option the property. There will always be a pool of people that make plenty of money to own a home, but they do not have the credit to qualify. These are the ideal tenant/buyer candidates. 
• You will mostly be dealing with homes in good condition with this technique. Lease option real estate investing is known as a "pretty house" technique. Our ideal property is one in good condition and one where the seller needs debt relief from the property. 

This is why lease option real estate investing is so attractive as an investor. We have a lot of flexibility, very little money or credit requirements, and a large market of people to work with. If you understand this one strategy, there is a lot of money that can be made.

The main technique that we want to explain on this page is something called a sandwich lease. This is where you are going to get into the deal using a lease option, and then using the lease option to get out of the deal. That is why it is called a sandwich lease. You are going to be using a lease option on both the buying and selling sides of the deal.

The easiest way to show you how this works is to give you an example. Here is an example of how this would work:

Terms of Lease	Lease Between Seller and Investor	Lease Between Tenant/Buyer and Investor
Length of Lease Option	Two Years	Two Years
Option Consideration	$1500	$3000
Lease Payment	$1100 Per Month	$1200 Per Month
Sales Price	$125,000	$140,000

One of the great things about lease option real estate investing deals is that you are going to be paid three times during the deal as an investor. They are:

1. The option consideration or also called the deposit at the beginning of the lease
2. The monthly cash flow from the lease payment (assuming that you are collecting more than you are paying out
3. The equity in the property (the difference of sales prices)

So, let's review this deal. The first time you are going to get paid is when you collect the option consideration or deposit from your tenant/buyer. They have paid you $3000 in this example, but the deal cost you $1500 to get into when you paid your deposit to the seller. This results in a $1500 profit.

The next time you get paid is the monthly cash flow. Your tenant/buyer is paying you $1200 a month and you are paying $1100 a month. This is a positive cash flow of $100 per month. Since this is a two year (24 month) lease, you would have $2400 profit from the cash flow over the two years.

Finally, the last time you are going to get paid is when your tenant/buyer gets financing and purchases the property, they are going to cash you out. They are buying it from you for $140,000 and you have to pay the seller $125,000 leaving a $15,000 profit in your favor.

So, here is the math: $1500 + $2400 + $15,000 = $18,900 profit on this one deal. This is a great deal for having very little money invested in the deal, no credit was needed, and you have very little risk.

The whole key to making this work is that you need to have a clause in your lease option agreement with the seller that says that you have the right to sublease. This is what allows you to rent out this property to someone that you do not own yet. This is critical and you cannot forget this step in a sandwich lease!

We like to use the following agreement as the right to sublease is part of the standard terms of the contract. Here is where you can get the lease option contract. Just remember that we do not want our tenant/buyer to have the right to sublease. We only put that in our contract with the seller.

There is rarely a shortage of tenant/buyers. Why? There are so many people with bad credit that would love to own a home. If you are giving them that option, they will take you up on it and come running. That is why we love lease option real estate investing.

It has it all...requires very little resources, a huge market of potential tenant/buyers, and very limited downside. Lease option real estate investing is one of our favorite techniques because of its versatility.