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When is a Lease Option Smart?

A few weeks back while doing Sunday Service, we had an excellent question on when to use lease options for creative financing.

That question opened up an explanation to what I think are the correct phases for most students who are looking to get into creative financing.

You can watch the video below, with this particular discussion starting at the 17:50 mark:

When to Structure a Lease Option Deal

Using a lease option is a smart move when you first start getting into creative finance and you’re looking for a bump in cash to help get your business moving.

There are several benefits to doing a lease option:

  • You get an option fee of between $3,000-$10,000 to help with marketing and other expenses

  • A lease option will get you up and running if needed

  • You don’t have to do the repairs on the property, the tenant does

As a beginning real estate investor, especially one getting started with creative financing, these are some pretty good reasons to use a lease option.

So what’s the downside to that?

The big reason to NOT use a lease option is the prospect of leaving money on the table, due to market raises and house appreciations.

When I look back at all of my businesses I did this year, the most money I made was through house appreciation on my portfolio.

Now that you’ve seen when and when not to use a lease option, what are the steps that I tell my students to take?

Strategies for Using a Lease Option for Real Estate Investing

1. Wholesaling Subto and Seller Finance Opportunities

This is where you find an opportunity, but instead of buying the deal yourself and trying to figure out terms, you do what my buddy Jamari did – you wholesale the property to someone like me for a fee.

2. Wrap or Selling on Seller Finance

Once you have the hang of finding deals and then getting those deals under contract, then you start progressing to wrapping or selling on seller finance.

3. Lease Options

This is where you would start doing lease options, which is far more beneficial when managing properties.

4. AirBNBs

AirBNBs are great for really big cash flows once you get the experience buying properties. The only downside is that they are more expensive to set up, so I recommend you wait until you a little more cash on hand.

5. Long term rentals

Finally, long term rentals are where you’re going to see the real appreciation of your net worth.

If you haven’t checked out my Sunday Service, be sure to catch us every Sunday evening on YouTube.

And if you’re ready to get started with investing in real estate, come join the Subto community and let’s do it!


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