When To Consider Wholesale Lease Options | Patten Title Company
August 27th, 2018

When To Consider Wholesale Lease Options

Real estate investment through wholesale lease options benefits the investor in a number of ways. Wholesale lease options are executed more quickly than traditional purchases that require a home loan, a monthly positive cash flow is developed, and you attract better tenants for your properties.

What are Lease Options?

Lease options are commonly referred to as seller financing or rent-to-own deals. A lease with option to purchase gives you a predetermined amount of time to lease the property with an option to purchase the home at an agreed upon price at the end of that period. This type of real estate investment offers a minimal risk to the investor because you control the property without actually owning it. The lease option gives you the right to buy the home after the preset time period, but no obligation to do so.

To wholesale lease options, you work with a tenant-buyer with the goal that they become the end purchaser. You’ll make an immediate profit and create a monthly cash flow. For example, you may negotiate the below terms in a lease options agreement:

  • Down payment to seller: $1800 (first month’s rent and $1000 option fee)
  • Monthly rent: $800
  • Option term: 2 years
  • Sale price: $85,000

Your out of pocket expense is $1800 for this deal, but when you bring on the end buyer, you’ll recoup your money and make a profit. Below are terms of an example wholesale lease option that you offer to the tenant-buyer:

  • Buyer’s down payment: $3800 (Includes first month’s rent and $2900 option fee)
  • Monthly rent: $900
  • Option term: 18 months
  • Sale price: $95,000

In this deal, you pocket the higher option fee and create a monthly cash flow. Your most significant profit comes when the tenant-buyer finalizes the purchase.

Process of Lease Options Deal:

  • Locate a seller open to a lease with the option to purchase agreement
  • Get property in lease option contract (typically written by real estate lawyer)
  • Connect with tenant-buyer who you prequalify, has a good down payment and is likely to be approved for a mortgage in 6-12 months
  • Enter lease option contract with the tenant-buyer
  • Assign the contract to the original seller
  • Collect the tenant-buyer’s option consideration fee
  • Pay the seller the first month’s rent
  • Enter the tenant-buyer into a credit repair program to increase likelihood of being approved for a mortgage within the necessary timeframe

When to Consider Lease Options

Investors can benefit to wholesale lease options when they don’t want to spend a lot of cash up front, can’t obtain a traditional home loan, or have qualified tenants in mind who can’t yet qualify for a mortgage. It’s also a good option for a quick profit if the property only needs cosmetic work and wouldn’t call for a large renovation budget.

A lease options agreement is not ideal if:

  • Seller is approaching foreclosure
  • Seller is currently in or about to file bankruptcy
  • Claims or liens exist on the home
  • Clouds on title (claim or unreleased lien that could make obtaining the title difficult or impossible)

Add this powerful real estate investing strategy to your portfolio with little cash down. Save time and money when you bypass the traditional purchase process and minimize your risk by controlling the property without owning it.