Property investment in this next phase of the housing market will require a little thinking out of the box. The typical investor thinks of nothing more than simply buying whatever properties they can afford and holding on to them for as long as possible. There are so many other strategies to be taken advantage of that investing requires a little more savvy these days due to the volatility of the past housing implosion.
So if you are willing to open up to other strategies, then it is time to cover my favorite property investment strategy, the lease option. The reason I love this strategy so much is its versatility. The truth of the matter is that lease options are not really a strategy in and of themselves as much as they are the foundation to getting through many financial constraints and that still allow versatility and healthy profits.
The most basic form of the lease option simply states that you are leasing a property to a renter and giving them the option to purchase the property at a future date. Beyond that, there aren’t any true hard and fast rules but here are some suggestions.
One: Always get an option fee. The option fee is a non-refundable fee usually in the range of 500 to two thousand dollars although this varies a great deal. This is really in place of the deposit in a rental property except you get to keep this fee.
Two: Keep the range of the lease option around two years. This gives plenty of time for the people to decide if they want to buy the house through the option. To be honest, it actually benefits you if they don’t buy the property so you can just keep lease optioning the property over and over allowing you to get an option fee each time. If they do decide to buy, you still win.
Three: Make sure the selling price you agree to is a price reflective of the housing market in the future. The house will be going up in value and so should the purchase price since they won’t actually purchase the home until the option has expired.
Four: Stay flexible. The great thing about lease options is that it gives you the room to structure the deals however you see fit.
Additional tip: as an investor, know the IRS 1031 exchange rules to avoid capital gains penalties when selling one property and buying another.
There are many ways to incorporate lease options into other investment strategies. You could sell your interest in the property to another investor; you could buy a fixer-upper and fix it up, then lease option it and so many other techniques. The fact of the matter is that the more exotic wisdom you have about property investment, the more lucrative it can become.