A leasing option is not new, although many people who are thinking of getting into real estate as a form of investment have never heard of it or don’t realize how powerful a tool it really is. Leasing options are a way to invest in real estate without a mortgage and to maximize your potential return on investment if you do decide to buy the home. This is why:
A lease option is an agreement you make with a landlord to lease the home or property for a specific number of months. This can be six months or even up to two years, depending on what the owner prefers and what he can negotiate with them. If he does his homework ahead of time, he will be able to see what the real estate market looks like today and what it will look like in the future. Based on these predictions, you need to decide whether a six-month or one-year lease option works for you. Maybe even nine months, which is not a common lease term but is definitely doable. Homeowners will probably agree, especially if they’re having trouble paying the mortgage. Many people buy second homes thinking they can sell their first and then find themselves stuck with two mortgages when they have trouble selling their first home. These are the perfect people for you to offer them a lease option. It allows you a window into whether the property appreciates enough to be worth buying without the commitment of a mortgage, and allows owners to have an instant cash infusion. It really is a win-win situation for everyone involved.
When you sign a lease option, you rent for the specified time and then decide whether or not to buy. That’s the beauty of it: it’s an option, you don’t have to buy the property. Let’s say you lease for a year and the market in that area hasn’t picked up like you thought. You can walk out of the deal once the lease term is up with no worries. The owner is then free to obtain another purchase or lease offer.
If the property appreciates in value, then you can buy the property, and all of the appreciation can be turned into a profit if you decide to sell the house in the future. If you are dabbling in real estate investing, nothing is certain, there is no way of knowing exactly how much profit you will make. However, with a leasing option, you greatly increase your chances of making a profit, with no risk and no down payment up front. For new real estate investors, this may be the best case scenario.