by Sal Vannutini
A lot of people believe that you need to have extra cash of your own to start investing in real estate. However, there are many financing options that don’t require money up front. In fact, your goal as a real estate investor should be to use as little of your own money as possible, regardless of how much you have on hand.
Lease options are the perfect strategy for investing in real estate with no money down. With lease options, you control the property while using very little of your money. Let’s take a closer look at lease options and how they work.
A lease is an arrangement to rent a property. An option gives you the right to purchase a property within a certain period of time, but does not require you to purchase it. The most attractive aspect of an option is that it locks in your future purchase price – regardless of what the market does or improvements to the home.
Favorable lease options can virtually guarantee your success. Start by leasing a handyman special with an option to buy at a below-market-value price. Once you fix it up, you can find a buyer at a higher price based on the improved value.
Lease options typically have three points that will need to be agreed upon by you and the homeowner. The first point is the exercise price. The exercise price is the amount that you agree to pay the homeowner at any point during the term of the agreement.
Secondly, lease options are in effect for a fixed length of time. You and the homeowner will negotiate a mutually agreeable expiration date. Finally, most lease options include an option fee. An option fee is an amount of money paid to the homeowner to prove that you are serious about your intentions to buy the home. The option fee is non-refundable, whether you exercise the option to purchase the home or not.
Lease options work especially well when the property is in need of some repair. The best situation you can find is where a homeowner is able to stay current on their mortgage while leasing the property to you. The lease gives you access and control of the property so that you can perform the needed repairs. Once the repairs are done, you can start looking for a buyer and negotiate a sale of the property. However, this particular situation can be difficult to find, so you may need to investigate rental properties in addition to owner occupied homes.
If you can find the right property with an owner who’s willing to negotiate a lease option arrangement, then you can start building real estate wealth with virtually no money down. By performing needed renovations during the term of your lease option and then finding a buyer for the improved property, you stand to make a handsome profit.
Sal Vannutini has quickly established himself as the “go-to” expert in the game of fixer-upper real estate. With over 19 years of “in-the-trenches” real estate investing experience, as well as helping hundreds of ordinary investors achieve their ultimate success, Sal is ready to help you achieve your financial goals and lifestyle from real estate investing. His study course Fixer-Upper Fortunes is the definitive guide on investing in fixer-uppers and foreclosures.