How to Set Up Lease To Own For Your Group Home
I am going to share with you a strategy used by some of the most intelligent investors and business owners in the world. It is referred to as a lease to own or lease with option to buy. It represents yet another way to get into this business with limited money.
How Is A Lease To Own Done?
The concept is relatively simple. Basically, during a rising market (or sometimes even better is the market is in a down cycle – i.e. ’08 – ’10) when you wind up finding a property that you believe will be a good long-term location for your clients you simply ask the owner of the building if they would be willing to sell you the property in the future. Start out with that simple question.
Many of them will say no….that is the honest to goodness truth. However, a certain percentage of these owner will say yes! Another way of going about it is to find a desperate landlord, someone that really needs to get their building occupied and lease-out. Tell that landlord that the only way you will lease the building is if they are willing to let you purchase the property at an agreed upon price anytime in the next 3 years.
What It Is In It For Them
What are you willing to give them in return? Well, let them know that you are willing to give them a non-refundable deposit! This is the money that you are going to have to give them anyway as a deposit on the building that you plan on leasing. You aren’t going to see that money until you move out of the building, so what does it matter if it is non-refundable! In most cases, throughout the country a deposit will equate to one-half to a full month’s rent.
If giving a landlord a $500 – $1000 non-refundable check allows you to tie up the building at a fixed price for a 2-5 year period (sometimes longer- remember it all depends on what you negotiate) then you are in the driver’s seat!
Let’s Crunch Some Numbers
- Current value: $85,000
- Option Price: $100,000
- Future Value In 3 Years: Unknown
Ok, so as you can see from above, I have put some numbers in for ease of reading. Let’s say that you find a building and the owner is willing to rent it to you for $850 per month. You estimate based on Zillow, redfin and other websites and realtors that the current value is $85,000.
However, the economy is starting to turn around and you know that the city is about to send some of the federal ARRA bond money into the area to begin improving the neighborhood (ARRA = American Recovery and Reinvestment Act which we will talk about in future articles).
You figure that this area could easily appreciate by 10% per year over the next four years. Remember, this happens in certain pockets of neighborhoods all over the country and could easily happen here. What would that result in?
Year 1: $85,000 x 1.1 = $93,500
Year 2: $93,500 x 1.1 = $102,850
Year 3: $102,850 X 1.1 = $113,135
Year 4: $113,135 X 1.1 = $124,448
Suppose you had negotiated a strike price or purchase price of $100,000. At the end of year four you simply exercise your option and buy the property to walk with an instant $24,448 of equity or wholesale it for a $24,448 gain! Lease to own is a great way to go.
These things happen ALL THE TIME. In our program, we go into step-by-step details about how to do this…
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