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Westwood RE Trends: Lease Options

Real Estate Agent with Your Castle Real Estate

Investing in Real Estate 6 - Lease Options

This blog will discuss a type of real estate investment, lease options, in the Observatory Park area in Denver.


What this investment is:  A lease option (L/O) is Acquiring control of a property (though not necessarily ownership), then leasing the property to a tenant.  The lease is bundled with an option, so the tenant can (but does not have to) purchase the property for a given price within a given time frame.  Again you are seeking a tenant for a property, but usually for a slightly longer term (12-18 months) and frequently (though not always) with the goal that the tenant purchase the property from you at the end of the lease.  If you purchase the property, then it's an easier process; if you find a highly motivated seller to let you re-lease the property to another tenant, it can be a lot of work to set up.  However, the re-lease method doesn't require any cash out of pocket and does not rely on your credit score, so it is appealing to many investors.  Great for beginners with the right skills and attitude.


Equity needed:  If you get seller financing, potentially just a few thousand dollars for your operating account.  If you purchase the property, 10% down (best case); more likely 20% down.


Importance of credit:  If you leverage seller carry, not important at all.  If you purchase the property, credit is important.  A 720 FICO score would help a lot.  Being able to document your income and your assets will be critical.


Importance of experience with contractors:  Some exposure would be helpful, but you are not likely to encounter construction projects any more difficult than you have maintaining your own personal residence.


Important of experience with property managers:  Not important; the majority of our clients manage their own rentals when they get started.  We run classes on how to do this from time to time.  Go to http://www.yourcastle.org/events.cfm to see when the next session is.


rhonda prudhomme

Hi my name is rhonda, we signed a 3 year lease, we have been here a year and half. we did all the landscapping., only to find the owner let the home go ton forecloser, even though we were paying are rent to him. we put 5,000.00 down so when are three years were up we could by the home., only to find out our 5,000.00 dollars was never put in  an account. we are now having to leave the home after we have put 24,ooo.oo dollars into the home. i think lease options are wrong, and if you sign one please have a lawyer look at it first, so you dont find your self were my family is. thank you rhonda

Mar 28, 2009 08:21 AM