fliprent

There are many ways to buy and sell real estate.   The main objective for a real estate investor is to make money.  In a down market like the one we are in now, many house flippers are jumping ship.  This opens the gate for the ones that choose to continue and whether the storm.   The question still remains.   How can I make money investing in a down market?  Much of what we see on the house flipping television shows and what we read in house flipping books says that houses should be flipped quickly.  The longer we hold them the more they cost.  While this may be true if you are carrying the note without a tenant, it does not mean that you cannot make just as much if not more by holding the house over a longer period of time.  Many houses are sitting on the market for a year and counting.  This is where the lease purchase exit strategy can pay big dividends. 

Lease Purchase Agreement

This is agreement made between a buyer and a seller in which it allows the buyer to rent the house for a specified period of time and later purchase it at a previously agreed upon price.  The option payment is paid at the time of the agreement and can be applied to the purchase price at the time of purchase.  This strategy is used by some investors no matter the market, but I especially like it in a down market. 

Some of the benefits to the investor are:

• A quick profit from the option payment
• Collecting monthly rental payments
• Maintenance and repairs are passed to the renter/lessee
• Some protection from a decrease in property values
• Obtaining tax write offs
• Paying down the mortgage
• Tenants tend to take more care in the property (sometimes improve it)

The main potential down side is the possibility of leaving money on the table if the property increases in value more than the original agreed upon option price.   Also the option means just that.  The buyer does not have to exercise the option if she so chooses.  This can actually be an advantage in some cases.

Some benefits to the buyer include:

• Taking the property on a “test drive”
• Saving up the down payment money during the option period
• A locked in sales price a current values
• Repairing his/her credit

An option period can be anywhere from 1 year to 3 years or more.   You as the investor have the luxury of structuring the contract in a way that makes sense for you.   Personally 3 years is the most that I would be willing to offer on a residential home. 

There are very few buyers in the current real estate market due to the mortgage situation, inflated prices and low consumer confidence.  This has created a market where there are more renters than buyers.  This does not mean that there are less people that want to buy a home.   The lease/purchase exit strategy can be a good way to leverage the best of both worlds.