Flipping Properties Using the Lease Option
Typically we use lease options as an exit strategy when flipping properties. If we are not able to quickly sell a house for the price that we want, then we can always fall back on the lease option.
Maybe we have found a person that wants to own the home. Unfortunately their credit is not at the level necessary to purchase the newly renovated house flip. They may have gone through a recent bankruptcy or gone through some other sort of financial trouble.
A way that we can get this type of person into one of our homes is through the lease option. The person will place a down payment of say $10,000 or $20,000 on the home. This is what is known as their “option.” That money secures their interest in the property.
Now if they never decide to buy the house, then the down payment is mine to keep. This serves as my protection and ensures that they will take care of the house. Obviously it is very important to communicate this to the person when discussing the lease option. You always want to remain 100% transparent and make sure that they understand how the lease option deal works.
Interestingly I recently had one of my sub-contractors present me with a property that he was very interested in purchasing. He’s a really great guy who does some awesome work for me, so I offered to take a look at the house and the potential deal.
The numbers just were not working out for my sub-contractor, at least when it came to buying the home. He had been making great money over the past year, and could afford the property. However he didn’t have the long-term proof of income that the bank wanted to see.
My plan was then to buy the property with cash. Banks appreciate cash deals so I was able to close on the home without any issues. Plus I knew that I already had a buyer lined up – my sub-contractor buddy.
My sub-contractor will then pay me a down payment on the home. In 6-12 months when he has his financial numbers squared away, he should be able to qualify for traditional financing, and take over the house for a price that we agree upon.
I understand that this is a brief and general overview of the lease option. If you need some extra detail or help understanding the lease option, then please simply leave a comment below and I’ll be sure to get back to you.
As always I am happy to help in any capacity.
Have a great day and I’ll see you at the top!