Real Estate Leasing Options

Regardless of how experienced you are as an investor, real estate leasing opportunities can improve your portfolio significantly.

You may have heard the terms lease-option, rent-to-own, and lease-to-own. For all intents and purposes, they mean the exact same thing. A rent-to-own investment strategy requires a tenant to pay an upfront fee to get involved in the property, make a payment every month, and eventually take over as the owner.

“In real estate, the lease-option is a legal instrument between the investor/seller and a tenant/buyer,” writes Abhi Golhar in Forbes Magazine. “It involves a lease with a monthly rental amount due, but it also includes an option to buy — for a predetermined price — at any time during the agreement.

I understand the steps needed to make money in a rent-to-own situation. In fact, I used this strategy myself when I acquired my first apartment deal, so I can attest to its value. That’s why I enjoy sharing with you how to take advantage of this in a big way, with little to no money out of your own pocket.

To receive more information about my philosophy as an investor, get in touch by clicking here. When you are prepared to start investing, you can schedule a planning session.

And don’t forget to check out both volumes of my real estate investing book or my daily podcast, Best Show Ever.

woman sitting in a stylish studio apartment

Long or Short-Term Lease: Which to Look for When Buying Apartments to Rent

You feel excitement course through your veins as you begin your search for the perfect apartment community. All you can think about is generating consistent income for many years and watching your bottom line grow like never before.

Wait a minute, though. Have you given thought to how long you will rent your future apartments? In other words, what will your lease lengths be? These are a couple of critical questions to ask when investing in apartments.

During your search for apartment deals, you will come across either long-term or short-term lease options. The truth is, they can both be great options based on various property managers’ or landlords’ preferences.

Here’s a rundown on what investing in short term rentals versus long-term rentals is all about, as well as which avenue may work best for you when buying apartments to rent.

What Are Short-Term Leases?

Short-term leases are generally apartment rental agreements whose durations are no more than six months. However, leases that last for under one year technically fall under the “short-term” category.

If you’re interested in buying apartments to rent, you’ll mostly find these types of leases in cities where the rental property demand is high and the supply is low. For example, the Big Apple offers many short-term leasing opportunities due to the city’s constantly growing population and hefty rent amounts. Likewise, short-term renting opportunities are not uncommon in cities like Los Angeles, Boston, and Chicago.

Many short-term leases are in increments of three months—like three, six, and nine months. However, in areas like Atlanta, you’ll find many rental properties with a wide range of lease lengths—for example, five months or even 11 months. Some real estate investors also offer month-to-month lease options. In addition, renting out homes to tourists for under 30 days is becoming increasingly popular.

Why Short-Term Leases?

When you’re buying apartments to rent, investing in short term rentals is a good idea considering that the market for short-term rentals is on an upswing. In fact, if you’re considering renting out a property to vacationers, the good news is that this market is slated to grow globally over 7% from 2017 to 2021. That’s because a greater number of travelers are interested in staying in homes versus hotels when on vacation. Ideally, you should try to create a source of recurring revenue for yourself with these types of leases by encouraging vacationers to use your property year after year.

Another benefit of investing in apartments with short-term leases, in general, is that they often generate more income when compared with their long-term counterparts. Of course, you’ll have to take into consideration factors like your vacancy rates and market volatility, which can have a bearing on your bottom line.

Yet another reason for investing in short term rentals when you’re buying apartments to rent is that this move can help you to diversify your real estate investments. Asset diversification, where you have a mix of long-term and short-term rentals, can help to protect your portfolio from volatility in the market.

What Are Long-Term Leases?

Long-term leases are rental agreements whose durations are at least 12 months. Some long-term leases run 13 months, 15 months, or even longer.

If you’re interested in buying apartments to rent, the main advantage of these types of leases is that they eliminate the need to constantly seek new tenants to fill your units. This ultimately provides you as an investor with more stability and security, as you’ll be guaranteed to have checks coming each month for at least a year.

This perk makes long-term leases quite different from short-term rentals, where the turnover is high. A high turnover means more time spent marketing your property and searching for new tenants, which can understandably be frustrating over time.

Why Long-Term Leases?

As you’re buying apartments to rent, note that long-term rentals are among the best investment strategies for real estate investors because they are relatively low risk. Why? Because more people now than ever before are interested in renting homes instead of buying them.

In addition, long-term rentals are generally low maintenance. That’s because, if your long-term tenants begin to view your units as their homes, they are more likely to treat them as such. This means they likely won’t cause major damage. On the contrary, some short-term tenants have a tendency to be more careless and reckless, which may increase your repair and maintenance costs. It also might behoove you to upgrade the insurance on your property when you invest in apartments with short-term leases.

On top of the above, a long-term rental is an excellent investment strategy no matter what an investor’s level of commitment or experience may be when buying apartments to rent. That’s because long-term rentals can serve as passive investments. Once you make an apartment purchase, you simply allow a property management company to handle just about every aspect of managing and owning the rental for you. Meanwhile, you can just focus on enjoying the property’s passive income.

Note that, with traditional rentals, the likelihood of your real estate property appreciating is also strong. Thus, your property’s value will likely increase with time, which can lead to a nice payday for you if you decide to sell the apartment complex in a great seller’s market.

Start Buying Apartments to Rent and Experiencing Excellent Returns Today!

If you’re interested in buying apartments to rent, now is a great time to get into the multifamily property market. Fortunately, this isn’t an endeavor you to have tackle on your own.

I would be happy to steer you in the right direction when it comes to investing in short term rentals or long-term rentals, depending on your specific needs and interests. Work with me and learn what your next steps should be. With my help, you can confidently make your next apartment purchase and experience income on a whole new level in the months and years ahead.

cozy white house for rent

How to Acquire over 100 Properties in 24 Months Utilizing the Lease-Option Strategy

Bob Scott and Jimmy Vreeland, who are SFR lease-option investors that have secured over 100 distressed properties, most being purchased at 30 to 40 cents on the dollar, are two of many speakers who will be presenting at the 1st annual Best Real Estate Investing Advice Ever Conference in Denver, CO February 24th to 25th.

 

I interviewed Bob and Jimmy on my podcast late last year and they provided their Best Ever advice, which is a sneak preview of the information he will be presenting at the conference.

 

What was Bob and Jimmy’s Best Ever advice? They explained how they were able to acquire over 100 properties in 24 months utilizing a lease-option real estate investment strategy.

What is a Lease-Option?

According to Wikipedia, in a lease-option, “a property owner and tenant agree that at the end of a specified rental period for a given property, the renter has the option of purchasing the property.” This lease-option real estate benefits individuals who cannot qualify for a traditional mortgage loan. And due to the financial crash in 2007, an estimated 80% of the current buyer’s pool couldn’t qualify for a mortgage, so there was an extreme need for other purchase options.

 

The main two reasons why these individuals are unable to qualify for a loan are (1) low credit scores or (2) not receiving a w2 paycheck. Jimmy and Bob stated that most of their lease-option tenants have more than enough monthly income to qualify for a loan, but they are just lacking in the credit or paperwork department. These are individuals who have the ownership mentality – they want to be a homeowner – and by giving them the lease-option, Jimmy and Bob are providing them with an avenue to do so.

How to Find Tenant-Buyers?

Jimmy and Bob find their tenant-buyers for lease-option real estate deals by listing their properties in three main ways:

1.vFlyer

 

vFlyer is a syndication site that automatically sends out listings to over 20 different websites, including Zillow, Trulia, and Yahoo Real Estate, which is a huge time saver.

 

1.Craigslist

 

They find that Craigslist is still a great source to find tenant-buyers.

 

1.Facebook

 

They post simple Facebook ads and, as a result, their phones ring off the hook! The marketing message is simple – “Lease-option, rent-to-own, bad credit is okay, no banks required.” When a potential tenant-buyer clicks on the Facebook ad, it sends them to a simple, clean, no distraction landing page, which has a two-step opt-in form, requiring their name and email. In the second step, the tenant-buyer will provide additional information, including how much they can put down, how much they can afford monthly, and the type of property they want.

How Long are Lease-Option Contracts?

Jimmy and Bob’s typical lease-option is 12 or 24 months because most people’s credit situations can be corrected in that time. On day one, after signing up, the tenant-buyer meets the mortgage broker and credit repairperson with whom they will be working. The goal is to have the tenant-buyer hit “The Four Pillars of Improving Credit” so that they can qualify for a mortgage loan and exercise their option to purchase at the conclusion of the contract.

The Four Pillars are:

  1. Cleaning up past credit issues
  2. Getting a checking account
  3. Getting a secured credit card
  4. Reporting the tenant-buyer’s on-time rent payments to the Credit Bureau for them using a service called Rental Karma

If the tenant-buyer hits those Four Pillars, they should be able to qualify for a loan within a year.

Example Lease-Option Scenario

Jimmy and Bob recently purchased some lease-option real estate for a total investment of $60,000. Four days later, they had a tenant in the property. The tenant signed a 12-month contract that required them to put down an $8,000 nonrefundable option deposit and to pay $1,500 per month in rent.

 

Using this example as context, here are the 3 main benefits of lease-option real estate investing over being a traditional landlord:

 

1.Nonrefundable Deposit

 

If Jimmy and Bob would have gone the traditional route, they may have gotten a refundable $1,200 security deposit, instead of the $8,000 nonrefundable deposit. Receiving $8,000 on day one on a $60,000 investment means they’ve already achieved a 13% return!

 

The nonrefundable deposit also serves as the tenants “skin in the game.” It incentivizes them to pay their rent on time and to honor the contract. If the tenant does walk away or needs to be evicted, the higher nonrefundable deposit mitigates Jimmy and Bob’s risk against those or similar situations.

 

1.Demand Above-Market Rents

 

Jimmy and Bob may have only gotten $1,200 per month going the traditional route, instead of the $1,500 a month with a lease-option real estate deal. Since they are targeting that 80% of the market that very few investors are talking to, they are able to get above-market rents. The difference between $1,200 and $1,500 a month is $3,600 a year in additional income.

 

2.Tenants Responsible for Ongoing repairs

 

In a lease-option situation, the tenant-buyer is responsible for ongoing repairs and maintenance. This not only increases the cash flow but also benefits Jimmy and Bob from a time management perspective. If something goes wrong in a traditional rental, you have to field that call from the tenant, figure out the issue, and coordinate to send a handyman or contractor out to the property. Many times, the tenants miss the appointment, so you have to coordinate with the handyman for a second time. Then, you get a call back from the handyman telling you the issue and the cost. However, Jimmy and Bob eliminate that entire time-consuming process by having the maintenance and repairs be the tenant-buyers responsibility.

Conclusion

Lease-option real estate is when a tenant signs a contract with a property owner and has the option to purchase the property either once it expires or once they qualify for a traditional mortgage.

 

When Jimmy and Bob have a property that needs to be leased, they find the majority of their lease-option tenants using vFlyer, Craigslist, and Facebook ads.

 

Lease-option contracts are usually 12 to 24 months in duration. Once the tenant achieves the “Four Pillars of Improving Credit,” they will qualify for a loan and be able to exercise their option to purchase the property.

 

The three main advantages of lease-options over traditional buy-and-hold investing are larger and nonrefundable deposits, above-market rents, and tenants are responsible for ongoing repairs and maintenance. Just remember to get all of your agreements with the tenant in writing!

 

For other types of rental properties, such as apartments, read more here.

ocean town real estate investing

Two Creative Rent-To-Own Strategies with NOTHING Out-of-Pocket

 

Rent-to-own, lease-to-on, lease-option: they all mean the same thing. Bring in a tenant who pay an upfront fee to get into the property, make monthly payments over an agreed upon period of time, and eventually buy the property. Real estate investor Jon Simcoe has put a new spin on this standard rent-to-own strategy, and in our recent conversation, he explained the two strategies he implements and the big paydays that come as result of his creativity.

 

Rent-To-Own Strategy #1 – Tenant First

 

The first, and strongest rent-to-own strategy that Jon implements is “tenant first.” For this strategy, he starts with the tenant and then finds a property. Tenants will work with Jon for one of two reasons: (1) they don’t have a high enough credit score or (2) they don’t have a large enough down payment to qualify for a bank loan. So, they come to Jon and he helps them buy a house of their choosing that aligns with their financial situation and one that they will be able to purchase after two to three years.

 

In return, Jon requires the tenant to provide a non-refundable down payment to initiate the contract. This goes towards the down payment that can be used to purchase the property at the end of the contract. But if they decide not to buy, Jon gets to keep the money. The tenants are also responsible for paying monthly rent, plus an additional fee. The rent is not applied to the purchase price, but the additional fee gets added to the non-refundable down payment so that at the end of the contract, the tenant should only have to bring a small amount of funds, if any, to the closing table.

 

Allowing the non-refundable down payment and the added fee to be applied to purchasing the home is one of the ways that Jon sets his tenants up for success. Another service he provides is a credit specialist that meets with the tenant every three months to make sure they are doing everything they can to get their credit score to where it needs to be.

 

 

Rent-To-Own Strategy #2 – Property First

 

The other rent-to-own strategy is “property first,” which Jon follows when the market and economy is trending downward. Jon will find properties from distressed owners. Then, he finds someone to rent-to-own the home off of the current owner. Unlike “tenant first,” for this strategy, Jon doesn’t need to buy any of these properties. He just finds both a motivated seller who will keep the existing financing in place and a capable rent-to-own buyer and facilitates the transaction between the two parties.

 

How Jon gets paid for this “property first” strategy differs from the “tenant first” approach. Since he isn’t purchasing the property, he keeps 10% of the rent paid and sends the rest to the owners. Part of that 10% goes to Jon’s credit specialist who, like “tenant first,” makes sure the tenant’s credit is moving in the right direction. He also charges the original owners an initial set-up fee, as well as a $10,000 “successful outcome” fee after the tenants purchase the property.

 

 

Rent-To-Own Strategy Comparisons

 

Strategy #1 – “Tenant First”

 

  • Income – Non-refundable down payment + monthly rent + profit when tenants purchase
  • Required to purchase the property – Jon leverages bank financing and OPM (other people’s money) to minimize or completely eliminate his money out-of-pocket + Jon benefits from the mortgage getting paid down
  • Higher profits – $50,000 to $70,000 per deal on average, but sometimes $100,000 and up
  • ROI – 40% to 60% on average, based on down payment. If using OPM, Jon has to pay 10% to 15% to partners and then the rest is his.

 

Strategy # 2 – “Property First”

 

  • Income – Initial set-up fee + 10% of rent paid + $10,000 at closing
  • Not required to purchase the property – current owners keep existing mortgage + Jon doesn’t benefit from mortgage getting paid down
  • Lower profits – $25,000 to $30,000 per deal on average
  • ROI – Infinite since no money out-of-pocket

 

As you can see, with a little creativity and resourcefulness, you can implement both of these strategies with little or no money out-of-pocket.

 

 

 

 

lease-option

How to Acquire over 100 Properties in 24 Months Utilizing the Lease-Option Strategy

 

Did you know that due to the financial crisis in 2007, an estimated 80% of the current buyer’s pool can’t qualify for a mortgage? And unfortunately, most traditional investors and agents are missing out on this unfulfilled market need. However, Jimmy Vreedland and Bob Scott identified this need and tapped into that 80% by following the lease-option strategy. In our recent conversation, Jimmy and Bob explained how they were able to acquire over 100 properties in the last 24 months utilizing lease-options.

 

What is a Lease-Option?

 

According to Wikipedia, in a lease-option, a property owner and tenant agree that, at the end of a specified rental period for a given property, the renter has the option of purchasing the property. The lease-option best serves that 80% of individuals that cannot qualify for a traditional mortgage loan. The main two reasons why they are unable to qualify for a loan are due to (1) low credit score or (2) not receiving a w2 paycheck. Jimmy and Bob stated that most of their lease-option tenants have more than enough monthly income to qualify for a loan, but they are just lacking in the credit or paperwork department. These are individuals that have the ownership mentality – they want to be a homeowner – and by giving them the lease-option, Jimmy and Bob are providing them with an avenue to do so.

 

 

How to Find Tenant-Buyers?

 

Jimmy and Bob find their tenant-buyers by posting open listings in three main ways:

 

  1. vFlyer

 

vFlyer is a syndication site that automatically blasts out listings to over 20 different websites, including Zillow, Trulia, and Yahoo Real Estate, which is a huge time saver.

 

  1. Craigslist

 

They find that Craigslist is still a great source to find tenant-buyers.

 

  1. Facebook

 

They put up simple Facebook ads and their phones ring off the hook! The marketing message is simple – “Lease-option, rent-to-own, bad credit is okay, no banks required.” When a potential tenant-buyer clicks on the Facebook ad, it sends them to a simple, clean, no distraction landing page, which has a two-step opt-in form, requiring their name and email. In the second step, the tenant-buyer will provide how much they can put down, how much they can afford monthly, and the type of property they want.

 

 

How Long are Lease-Option Contracts?

 

Jimmy and Bob’s typical lease-option is 12 or 24 months. Most people’s credit situations can be corrected in that time. On day one, after signing up, the tenant-buyer meets the mortgage broker and credit repairperson that they will be working with. The goal is to have the tenant-buyer hit “The Four Pillars of Improving Credit” so that they can qualify for a mortgage loan and exercise their option to purchase at the conclusion of the contract.

 

The Four Pillars are:

 

  1. Cleaning up past credit issues
  2. Getting a checking account
  3. Getting a secured credit card
  4. Reporting the tenant-buyer’s on-time rent payments to the Credit Bureau for them, using a service called Rental Karma

 

If the tenant-buyer hits those Four Pillars, they should be able to qualify for a loan within a year.

 

 

Example Lease-Option Scenario

 

Jimmy and Bob recently purchased a property for a total investment of $60,000. Four days later, they had a tenant in the property. The tenant signed a 12-month contract that required them to put down an $8,000 nonrefundable option deposit and to pay $1,500 per month in rent.

 

Based on this example, here are the 3 main benefits of lease-options over traditional landlord:

 

  1. Nonrefundable Deposit

 

If Jimmy and Bob would have gone the traditional landlord route, they may have gotten a refundable $1,200 security deposit, instead of the $8,000 nonrefundable deposit. Receiving $8,000 day one on a $60,000 investment means they’ve already achieved a 13% return!

 

The nonrefundable deposit serves as the tenants “skin in the game.” It incentivizes them to pay their rent on time and to honor the contract. Also, if the tenant does walk away or needs to be evicted, the higher nonrefundable deposit cushions Jimmy and Bob against those, or similar situations.

 

  1. Demand Above Market Rents

 

If Jimmy and Bob would have gone the traditional landlord route, they may have only gotten $1,200 per month, instead of the $1,500 a month. Since they are targeting that 80% of the market that very few investors are talking to, they are able to get above market rents. The difference between $1,200 and $1,500 a month is $3,600 a year in additional income.

 

  1. Tenants Responsible for Ongoing repairs

 

In a lease-option situation, the tenant-buyer is responsible for ongoing repairs and maintenance. This not only increases the cash flow, but also benefits Jimmy and Bob from a time management perspective. If something goes wrong in a traditional rental, you have to field that call from the tenant, figure out the issue, coordinate to send a handyman or contractor out to the property. Many times, the tenants miss the appointment, so you have to coordinate with the handyman for a second time to come out. Then, you get a call back from the handyman telling you the issue and the cost. However, Jimmy and Bob eliminate that entire time consuming process by having the maintenance and repairs be the tenant-buyers responsibility.

 

 

 

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