The Lease Option | An Important House Flipping Tool
An important resource that every house flipper should know how to utilize is the lease option.
As a house flipper, you will need to improvise and adapt to the environment around you. Don’t be afraid to try new strategies and to change your game plan so that will profit.
When you flip a house, after you buy and rehab a property, you should always try to sell it to a buyer. However, life does not always play out ideally. Sometimes you might not be able to sell a property as quickly or at the price you had originally hoped.
If something like this happens, this does not mean that you should simply cut your losses and sell at a price that won’t earn you any money. Instead, you should find someone who is willing to agree to a lease option.
What Is A Lease Option?
To begin a lease option, you will start by buying and rehabbing a property. Then, instead of selling right away, you lease it out to a tenant. This agreement consists of two parts: the lease and the option.
The lease states that the tenant must pay a monthly rent to live in the property for a certain amount of time. However, a lease alone is not all you want as a house flipper. Your ultimate goal is to sell the property and to move on to another investment. That brings us to the second half of the agreement.
The option is the piece that allows the tenant to buy the property for after the lease period is up if they so desire. They will have to pay you what is called an option payment, or option consideration. The option payment is paid up front and is given back to the tenant if they do in fact decide to buy the property. However, if they don’t buy the house, you can keep this money.
For example, if the property is valued at $200,000, the option payment would be around $10,000 to $20,000.
This option payment essentially acts as protection incase the tenant changes their mind, so you aren’t back where you started.
What Types Of People Are Ideal Candidates?
The types of people that will typically consider a lease option are people who have just gone through...