As a real estate investor, leverage is most likely something you’re familiar with. Leverage is defined as the use of borrowed money to increase your proposed rate of return on your investment. Leverage can also be using or having access to other people’s assets that you use to benefit yourself.
For example, if you purchase a $200,000 home and put $40,000 down on it, you’ll take a loan out for $160,000. That remaining amount you rely on the rental payments to pay down.
However, when you keep buying rental properties, your debt amount can grow significantly. The methods I teach help to keep you out of this kind of situation, by avoiding banks all together. This combined with lease options is a potent strategy to building wealth through other people’s properties.
The beauty of lease options
That good news is that you use leverage by using a lease option for your investment rental properties. A lease option is a contract where the tenant agrees to rent the home and at the end of a specified time will have the option to purchase the home at a certain price (usually market value). The buyer doesn’t have to purchase the home, but he or she will have the option.
Should you use a lease option?
As an investor, using a lease option can serve you well. If you’re using my Unlimited Funding Program, you’ll want to become quite familiar with offering lease options. This way you never have to even go to the bank to acquire a loan. The loan simply stays in the seller’s name until your new tenants use that lease option to purchase the home after a specified rental period.
If you do use a lease option, you and your tenants will have a rental agreement stating the details. Smart investors will require a 3 to 5 (or even more) percent down payment of the home’s market value up front from the tenants. The best part is that this is cash in your pocket and is not refundable. Should the tenants change their mind down the road and decide not to purchase the home, that money is still yours to keep.
Advantages of a lease option
There are certainly benefits of offering a lease option, including:
- Fewer landlord headaches
- No realtor fees
- More tax breaks
- You get cash deposit right up front
- Tenants are more apt to take care of the home
- You get to set asking price, even including market value of the home at the time of purchase
This is a strategy I highly recommend as you move forward using my Unlimited Funding Program. This allows you to make a significant return on rental properties without having to go to the bank and acquire large amounts of debt. This is the best way to get into real estate investing without all of the financial headaches others deal with.
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