One of America’s billionaires was recently
asked the questions, “How do you do it? What is your number
one wealth building secret?” Without even one second
of hesitation he replied, “find what it is that people need
the most, and give it to them.”
Remember taht statement. -- Give it to
There are literally hundreds of
different ways to acquire real estate. In future articles, I
will be sharing some of the many different innovative
techniques used in creative real estate financing. In this
article, were going to explore a very useful and profitable
creative real estate financing technique commonly called Lease
Purchase Options. For ease of explanation, we will refer to
Lease Purchase Options as Lease Purchase.
What exactly is a Lease Purchase?
A Lease Purchase is a process where a rental
agreement is combined with a purchase or an option contract.
Price, length of contract, escrow instructions, rent credit
and other pertinent terms are all negotiated in advance. This
allows the tenant/buyer to have a defined percentage or dollar
amount to be credited to a down payment or off of the total
purchase price of the property when a payment is made.
First and foremost, you must know what needs,
wants, and desires the “right” property will fulfill. It is
obvious that those needs, wants, and desires will be the
requirements of someone. That someone is the investor. It is
the investor who establishes the value of any piece of
property in the marketplace by his or her requirements.
A real estate investor always has only
two considerations. Those two things are:
1. A return on investment or Profit. (also
known as ROI)
2. A return of investment or Security.
Remember that no matter what the circumstances
are surrounding an investment, these two considerations are
always the same: some form of profit (i.e. dollars,
property exchange or other goods and services, tax savings,
personal use) and security, or an assurance that the
original investment will remain intact and can be
The Lease Purchase, (also known as a lease
option), has everything an investor needs to make a
profitable investment in real estate. Utilizing small down
payments of 1% to 2%, an investor can control properties that
would usually require 10% to 30% down, without ever having to
see a lender or go through the loan application process.
There are three different ways a good deal can
1. Cash upfront with option consideration
2. Cash monthly in the form of rent
3. Cash at closing or a note
Other options involve “flipping” of the
optioned property to a third party or just acting as a
consultant for the buyer and seller, retaining a portion of
the option agreement. Controlling properties by creating a
lease purchase option is, by far, the best way to be involved
in controlling homes and obtaining great cash flow, high
profits and minimum risk. Lease Purchase may be the best way
to create a quick cash flow for the first time homeowner or
even the seasoned investor.
The key ingredients in putting together a
profitable Lease Option are:
1. Finding a motivated seller
2. Determining what his Needs and Wants are and
creating a win/win situation.
3. Finding a tenant/buyer
Question: Where do I find a Motivated Seller?
Remember a motivated sellers’ number one
objective is to get rid of their property – as soon as
possible. A sellers’ motivation can come from many
• Relocation – job transfers
• Financial difficulties
• Tennant problems
• Change in family size
• Building a new home
You need to determine what the sellers’
motivation is once you contact them. Often a seller is facing
financial difficulties and at other times it’s just that he no
longer wants to be bothered with the property because he now
has other interests. Our first priority then in
talking with the individual initially is to determine
Wants versus Needs. Most motivated sellers
fall in the Need category. Their situation may not be
negative. In the above list there are some items that are very
positive for the seller. But still it remains, that this
property is no longer needed for whatever reason(s).
You can find these deals:
• Looking in classified ads – “Homes for rent
or lease” or “For sale by Owner” ads. You can ask if they
would be interested in giving an option to buy their property
if you lease it from them.
• Distributing flyers and/or mailers stating, “
I can buy or lease your home” or “I can buy or lease your home
in 24 hours! Any size, any condition, any location. Call (your
name) (000) 123-4567
• Running an ad in your local paper stating you
are looking to lease a home. You can ask if they would
consider an option after the owner contacts you.)
Question: Where do I find tenant buyers?
Your tenant/buyer is someone who
desperately wants his or her own home, but for one
reason or another, getting bank financing will not work for
them at the present time. They either have credit problems,
don’t have the large down payment necessary to qualify or they
don’t have a high enough income. – You have the ability to
give this person an opportunity to realize their
• Run an ad such as this: “Rent to Own. If you
can rent you can own! Stop paying off your landlords’
mortgage! You can rent to own your own home even with poor
credit! Call (your name) (000) 123-4567
• Send mailers to occupants in neighboring
apartment complexes asking if they’re tired of renting and if
they would like to own their own homes.
Some benefits of a lease option for the
1. You now control another persons’ asset.
You’re in a position to make money on a property you don’t
2. Provides a positive cash flow
3. You have no closing costs.
4. A Lease/Option agreement is a unilateral
contract – the seller must perform. You are not bound in any
way. If the property should depreciate in value or some other
catastrophic event occur, you can simply walk away.
5. You don’t have tax or insurance costs.
6. You are buying the property tomorrow at
7. Little or no money needed up front.
8. Very little management needed. Tenant/buyers
take much pride in the property and therefore tend to keep it
up and even improve upon it. That’s because they have an
interest in owning it – not just renting it.
About the Author Rodney
Brooks is President and CEO of Brooks
Enterprises. Brooks Enterprises is headquartered
in Bridgeton, New Jersey.