The ONLY Way to CashFlow Single Family Homes
Real Investors. Real Deals. Real MONEY. Guaranteed.
INSTANTRealEstateSolutions.comTM is North America's first source providing real estate investors
access to investment properties, real estate investment loans, and other investors looking to joint venture on
real estate investing deals together. As a small but fast-growing online investing community, you're guaranteed
to find real investors, real deals, and real investment money, all here under one roof.
[Read More >>]
[Claim Free Trial >>]
A great way to make money by helping people on your investment is to lease the property out to a family and provide them with the option to buy the property at the end of the lease. Y
ou set the market price in advance, receive an earnest money Deposit, and then sit back and let the family move in to start Improving your property's value because in their mind they Already own the house…so pride of ownership sets in.
And with a Sandwich Lease Option, it's way better! Here's how to do just that by offering an example of a husband and wife client team I was mentoring recently.
They asked which strategy would be the best strategy to generate monthly cash flow on single family properties - and if it would be a good idea to get into them. Now, many experienced investors know that single family homes can be the worst type of cash flow property.
Why? Unless you truly get it at 50% off, then it is most difficult to attain more on rent than your mortgage payments, and you're also limited in the number of tenants you can rent to, which inhibits your profitability because an entire house is then taken up by a single tenant rather than multiple…
However, there is a strategy that I told them which they could use to their advantage quite well as they WERE getting deals at a much as 50% off. And that's the “Lease Option” Essentially, I would make sure the property I'm going to use for this strategy has equitable profit in it for me so that my mortgage payments are much lower than the rate I would charge for rent.
Then, instead of finding a renter who may stay in the property for six months (likely damage it, or at the very least cause normal wear and tear on the property then leave, and not allow it to appreciate as much), I'd much rather Lease it to a couple or family who has the Option To Buy my property in 12, 18, or 24 months.
The strategy here being that they're decent, hard-working people that want to raise their family in a property and eventually the dream of becoming a homeowner. This is a fantastic goal and you'll be helping them achieve that.
So let's say they're going to buy the property from me in two years.
And currently the market value of the property is $200K. Being that I'm taking the risk of leasing a property to them for two years, I factor in an annual appreciation of 10% (or $20K for two years) and set the future purchase price of the property at $220K. (FYI properties usually appreciate at 4-5% per year on average…I increase this because they pose a bit of a risk to me).
Now what I would do is have them provide me with a non-refundable Earnest Money Deposit of 3-5% of the purchase price ($6,600.00 to $11,000.00 in this example). T
his Earnest Money will be credited toward the purchase price of the home upon sale. Then, I lease the property to them at a rate above my mortgage payments…usually $150-300 above my payments. At the same time, I'm going to have my lender put them on a credit repair program so that in 12 months time, they'll be in a position to apply for a loan for the purchase price of the property.
During any time of the lease agreement, the tenant can exercise their right to purchase the home from me at $220K.
If they're not going to, they need to notify me within 60 days from termination of our lease agreement so we can either extend the agreement, or I can sell the house. The additional benefit to a lease option is that typically, tenants will move into the property and pride of ownership begins to set in because they literally envision themselves already having ownership of the house – even when technically they haven't achieved that yet.
Usually, they'll maintain and even upgrade the property – at their cost – improving the house and bringing up its overall value!
This strategy can work very well with single family housing. With a Sandwich Lease Option, I may come across a don't wanter landlord, rent the property from them, then turn around and rent it back out to another individual, couple or family, at a higher cost. In my agreement with the landlord they take care of all damages and repairs over $500.00. And in my agreement with my tenant, I have them responsible for damages and repairs below $500.00.
So right then and there I'm able to trade all risks, and make $100 to $300.00 a month on a property I don't own or live in. And it's completely legit!
My recommendation: This is the ONLY way that single family homes should be rented out as it drastically reduces your risk, provides a substantial net positive cash flow, as well as the ability to enjoy the increasing value of the property itself when it is properly cared for by a "Tenant/Owner".
Cheers,
Brad Wozny
Originally Posted: Apr 21, 2007 at 9:24 AM Last Updated: Apr 21, 2007 at 9:24 AM
-- Current Rating: 4 of 5 Click here for a printable version.
» [- May 1, 2007 at 8:34 AM -] Susan E. Taylorsays: This is a good reminder...I have a property in Detroit that I would love to rent-to-own!
