4 Key Strategies When Leasing Real Estate

To learn How To Be A Real Estate Investor, you must first learn the different types rental agreements.

In real estate, there is no universal “right way” to invest. Instead, you need to be able to change your strategy to fit the ever-changing market.

Sometimes, if the market is on a down turn, or if it is plateauing, the best option is to do a standard fix and flip. You buy, renovate, and quickly sell the property before you loose money on it.

However, if the market is on an up swing, you might consider doing a buy and hold. The idea of a buy and hold is to let the property appreciate in value over time, and then sell it at a higher price. While you are holding onto the property, you can rent it out to make up for the ongoing costs of insurance, property taxes and maintenance.

To learn how to be a real estate investor, you should know the different ways in which you can rent out a property. Below are some simple techniques you might consider trying.

Choose A Duration For The Agreement

Depending on your plans for the future, there are many different lengths of lease agreements that you can choose from. Each has it’s own benefits and ideal circumstances.

Fixed Term Lease Agreement

A fixed term lease agreement is a lease that usually lasts a year or two. The tenant is contractually obligated to pay the rent for that set amount of time, even if they decide to leave. The only exception to this rule is if you, the landlord, allow them to leave early because you want to sell the home.

The idea is that you will receive a steady profit without having to pay to advertise the property for a long time. The drawback is that, if you do want to sell and the tenant doesn’t want to leave, you must wait until their term is finished.

Periodic Lease

On the other hand, a periodic lease is a monthly, if not weekly contract. This benefits you as a landlord immensely. You have the ability to evict the tenant, usually within a month, so you can sell the house if you so choose. Additionally, if you’re short on cash, the periodic lease is great because the tenants have to pay the rent much more frequently.

At-Will Lease

An at-will lease has the potential to be the fastest rent arrangement. Unlike other types of leases, an at-will lease has no contractual obligation on either side. You can evict the tenant whenever you please, with no notice. However, they can also leave whenever they choose. These arrangements are often risky because the tenant could leave without paying a particular month’s rent.

Lease Purchase Agreement

A lease purchase agreement plays out exactly how it sounds. The tenant rents the property, and then, after a predetermined amount of time, must purchase it.

The tenant is contractually obligated to this. So, if they refuse to purchase, you can bring them to court and hold them accountable for the costs.

This agreement is great because you do not need to re-list the house to find a buyer or another renter at the end of the lease term. Instead, you can set back and let time take its course.

Lease Option or “Rent To Own”

Many people confuse a lease purchase agreement with a lease option; however, the two terms are very different. While a lease purchase mandates that the tenant purchase the property at the end of the term, the lease option does not. It simply gives them the option to if they so desire.

However, this choice isn’t free. They will have to pay an “option consideration” to give them the ability to decide one way or the other.

This fee is to be paid up front, giving you a hefty chunk of change to invest elsewhere. For a home that is valued at $200,000, the option consideration would be around $10,000 to $20,000.

If the buyer chooses to purchase the house at the end of the term, you must return this fee to them. However, they decide to walk away, it is yours to keep.

Typically, buyers like the lease option over the lease purchase because it gives them more flexibility. This means that you may be able to get away with charging a higher rent.

Subletting

As mentioned before, the buy and hold is an incredibly usefully investment strategy. While this is true, you don’t always have to purchase a property to rent it out. Instead, you can rent a property from a landlord and sublet it out to another buyer.

Standard Sandwich Lease

Often times, when people think of subletting, imagine a way to break even. Maybe a college student is renting an apartment during the school year, but in the summer, he sublets it at the same price out to a replacement tenant. This way he doesn’t have to pay for the apartment when he isn’t using it.

However, as a real estate investor, you can actually make money through this process. In a sandwich lease, instead of subletting the property for the same monthly rent, you will charge more and profit from the difference.

In a sandwich, any and all landlord jobs and duties are not your responsibility. Instead they are the responsibility of the original owner.

Sandwich Lease Option

The sandwich lease option takes it to another level by adding the purchase element. You, as the middleman sandwiched between the landlord and the sub letter, will lease option, or agree to lease purchase the property from the originally owner. Then you can sublet it out to another tenant, as a lease option if you want. You will profit from the difference between the rent, the option consideration fee, and/or the purchase price, whether the sub letter buyers the property or another buyer does.