What’s up everybody, if you want to know how to get into lease options and how that strategy works, I have the perfect call and the perfect video for you tune in.
Before we dive into this call about lease options and how to navigate these, I want him by to my free Facebook group called painless flipping. And all you got to do is just type in painless flipping and Facebook join, and you’re going to be able to get a bunch of materials, you’re going to be able to have master classes for free and a free community that will help you grow in your real estate journey.
So let’s talk about lease options. What are lease options lease options are buying a property or renting a property to with the option to purchase it. So lease option is exact same thing as a rent own, okay? It’s just a different way to say it lease option is saying I’m going to lease this property until I have the option to purchase it rent or I’m going to rent this property to have the option to purchase it.
When you do a lease option. You put someone in the property as well, you can you can lease it to someone else, right? Does that make sense? So if you go ahead and rent this property, and then you say, hey, Owner, I’m actually going to have an option to release this to a sublease to someone else, that person, you can sublease it to someone else for a higher rent, you can also get an option basically says like, Hey, if you want to buy this house in two years, this is the price and you can get an option fee.
Now, I’m not the expert at lease options. That’s not something I’ve particularly are specifically focused on. But I have an expert that is and I bring him on and I interview him. So check out how he got his first deal, and how he’s using lease options to do more deals. Let’s dive in and see how he’s doing and how you can do it too.
Let’s talk about that first deal you got you made $2,000 Tell us about how you got $2,000 on your first real estate deal. We focused on lease options rent to own. And so it was a joint venture deal with my partner and mentor. It was an out of state deal not not in Colorado. So Minnesota and what was a lot of cool things about it.
Basically, we brought our investor investor came in and bought a house for somebody that couldn’t get a loan. It turns out he was a real estate agent didn’t have its full two years to be able to get a loan, he needed that track record. And so he actually picked out a duplex was able to rent out one side and live in the other.
Okay. And within I think it was a year and a half he was able to get alone walked into some equity like it was during COVID Things were going up and up and up. And so we’re locked into equity our investor walked in or you know, made monthly income and a back end payday. So everybody was happy.
And this agent he was able to buy a single family home for himself and at the same time and turn that duplex into two doors, two rentals. All it was in a year and a half. It was it was awesome. Let’s break this down because a lot of people that listen to this podcast are brand new so let’s say you got you made $2,000 How did you make the 2000? Was it from the the option on the lease?
Like did they have to put some money down in the beginning? Was that the option payment? Yep, they had to put some money down have some skin in the game. That’s why we like lease options. They’ve got skin in the game compared to a regular renter. Right. Okay, so you made money on the option I assume you split is probably 4k And you split it with your mentor, he got more but you know, he he went out and found the duplex and made the offer like he’s doing a lot of the work.
Okay, we were just more of the connector. So okay, so you so this is how it worked. She found the deal. And then it was was it on the MLS or do you remember? Yeah, I believe it was on the MLS and the buyer was, I don’t know how he connected with him. But he had the buyer.
So okay, there’s value in that. Did he buy your mentor? Take it down and buy it with private money? Hard money? What did he end up doing? No, our our investor bought it with Okay. Yep. Just alone. Okay. Yeah. So the investor bought it on alone. And then then you put someone else in there as a lease option.
Yep. They just had a lease with an option agreement to buy. And it was an agent and you’re saying the agent is the one that took over the as lease option? Yep, exactly. And what’s cool is he now helps, you know, my partner and Minnesota screen tenants because he’s been through the process as a tenant. Wow. Interesting.
Okay, because I did hear about this company that does, they don’t they don’t think they take options. They don’t like take money up front. They just buy properties off the MLS for cash and then they do lease options. And then every year that you don’t exercise your option to buy it, the price goes up and the rent goes up.
I don’t know if you’ve heard of that. I can’t remember the company name. There’s multiple companies and different ways in fact, I as an agent, I teach other agents through continuing education class about this whole industry and how Yeah, we can all do it and do it correctly.
So that the end goal is that those people can become homeowners and right yeah, that’s not always the case. In fact, industry wide a lot of people don’t end up buying which is the oftentimes the fault of the company that didn’t screen correctly. Yeah, yeah, cuz you don’t
Want to take option their option money like their debt? Whatever you can say it’s Can you say it’s a down payment or not really, option payment? It’s a non refundable option consideration is the emoji.
They can use that if you if you’re giving them credit for that money they put down, they can use that for down payment and closing costs, right? But if they don’t qualify, then they kind of lose it pretty much. It’s non refundable. non refundable, right? And if you don’t, if you say, Hey, you have a lease, I’m giving you a lease option you can you exercise the right to buy this in the year, but you bring someone there, you know, they’re not going to qualify in a year, you’re pretty much are you saying that’s kind of the shady, not shady. But that’s like where could go wrong? If you’d like take a big option payment, but you know, they can’t qualify, right?
Yeah. And so like, screen them well looping in a lender in the beginning to really figure out like, where are they now? What’s it going to take to get to them to and then also figuring out how much time to give them? Because we start with them first, if they need a year, let’s give them two. So the backs not against the wall, maybe three years? You know, we’ll do up to 10 years actually, for sure.
So so do a lot of people do this where they will buy a property on a traditional like FHA or conventional loan and then sell it on lease option. Yeah, I don’t know how many people are doing it individually, like, like we are. Because like that company you’re talking about, they probably have a big fund behind them. Oh, man, they probably Yeah, they do it. I think they have like, over like 15,000 homes or something. Yeah, yeah. Yeah, black rocks behind one of them in the right.
Cash, and keeping us cash not putting loans on it. We like to put a loan on it and leverage that, you know, make an investor can get multiple deals by leveraging. So that was your first deal that you did. And then you’re you’re continuing and progressing and doing it more and more. Is that right? Yeah, exactly.
We’ve done multiple joint ventures with our partner and and then I’ve done them on our own myself and Toby my my business partner here in Colorado. Oh, cool. How long have you been doing this? For everybody that’s watching and how did you start? Just recently, have you been in for a long time? This is year three.
Okay, year three. Are you doing full time now? Yep. Wow. Okay. So where are you able to find most of your properties? You’re able to do lease options for most of ours in the past have been out of state outside Colorado? Why is that we just those joint venture deals, you know, our partner had the buyer already in the Midwest, some others came through my brokerage exp. You know, I’m pretty well known throughout exp for doing this.
And so I’ll have people coming to me like, hey, got somebody that can’t get qualified. What can you do? So Gotcha. Yeah. When you say you have your your investor, your buyer and he’s he’s he’s the one that’s coming in with the getting the loan? Is that what’s happening to the buyers? There’s, there’s a the resident or tenant, the end buyer, and then there’s the investor who’s a buyer in the beginning, which one is the most difficult one to find? Finding good tenant buyers or resident buyers? I like to say residence, right.
That’s harder to find, because there’s a lot of people that can’t get loans, right? Of course, yeah. Especially right now. Right? Yeah, it’s getting harder and harder. There’s more programs, but their guidelines are pretty, pretty tight. So where are you fine? Where are you finding? Sorry to interrupt?
Where are you finding these? These tenant buyers? Most of them are through relationships I have in the industry, people that run across people that can’t get qualified. So okay, so you, you find an investor that how do you pay that investor out for taking the property like? Or do you get paid out like a fee, a part of the option fee? Like, how do you get compensated? Yeah, well, there’s two different ways we do it, I get paid part of the option fee.
And then as a licensed agent, I can pick up the buy side Commission, which may be difficult if you’re following news with the National Association of Realtors and the lawsuits going on. That’s a whole rabbit hole. Oh, wow. He’s going on over there. It’s a huge shake up. Yeah. What’s going on? Tell us about the shake up? We don’t know.
I don’t know what’s going on. Yeah. So traditionally, or in the past and how it’s currently done. The buyer or I mean, the seller commits to paying all the Commission’s for the listing agent and the buying agent, right, that split between the two. Now they’re trying to make it so a buyer agent is going to have to get paid outside that transaction, like get paid directly from the buyer. The challenge is like most buyers, especially first time homebuyers don’t have extra money to pay above and beyond their down payment and closing costs. Wow, just barely making it work. Right.
So are they trying to make buying buyer’s agents obsolete? Like just being like, hey, people can search on the MLS by themselves like well, I mean, it’s kind of going that way in a way like Zillow and Redfin, all these other sites. You can go see properties. Yeah. But they’re, they’re left out in the cold without any backup, somebody knowing all the contracts and just, there’s so are many ways you can, you know, get taken advantage of just by not knowing what’s going on. Right? Yeah, it’s kind of confusing.
I didn’t know that was a problem is that you said, is this recent that they’re trying to not pay buyer’s agents? Yeah, well, it’s been stewing for a couple of years. And there’s a bunch of big real estate brokerages that are in the firing line getting sued millions and millions of dollars. So it’s, it’s messy, why would they be getting sued? Aren’t they agreeing to like the seller of the home is agreeing to pay the buyer’s agent commission if they bring the buyer?
Yeah, I think part of it is they’re like it’s not transparent. But so that’s what like what we’re doing in my group. In exp, we’ve been actually splitting that out and making it transparent. So everybody sees what the buyer agents making. So I found ahead of the game for three years or more, what’s your outlook on? What will happen to that? Do you think they’re just going to take away buyers Commission’s? What do you think on that? Yeah, you know,
I think what it’ll end up being is like, you know, say a purchase price without having the buyer’s commission is 300 grand, or whatever that number is, the buyer agent would still get paid out of the equity of the house. And they just add that on to that final purchase price. Interesting. So there’s the seller would still be be paying that.
Yeah, I don’t know how buyers are going to come up with that money. Well, hey, dang, bro. So you went from 2k on your first deal to now doing lease options and knowing all this stuff about being a real estate agent and being involved in EXP and being the go to guy if you can’t qualify for a property? You help people get in through lease options? Is that what’s going on? Exactly.
It what’s cool too, is like I’m helping other agents and lenders. Lenders love this too, because they can get a loan for the investor and for the buyer in the future.
They got one in the pipeline. So that’s what’s cool is like I’m able to help a lot of people in their business and get people into homes that normally couldn’t or would have to wait, you know, yeah, and probably feels good getting someone at home that they probably didn’t feel like they could get into totally, it’s super satisfying to be able to help you be able to help people get into homes, especially when they were taught being told no by the bank. If you like that information, please like subscribe and hit the bell icon for more and help us grow this channel.
