| How you can accumulate equity faster than with a mortgage |
You simply will not find a faster way to accumulate equity in a home
than with the lease purchase contract. The three examples below prove what
I say. Study them and decide for yourself.
Example 1
A comparison of the rate of equity accumulation in a one-year period
between renting, owning, and lease purchasing based on the following
example:
You find a 3-bedroom, 2-bath home in a nice part of town. The sales
price is $100,000. You convince the landlord/seller to lease purchase it
to you. You put down $3,500 (3.5%) as an option deposit which is credited
100% towards the purchase of the home when you buy it plus first month's
rent which is $1,000. Each month you receive a $250 (25%) rent credit
towards the purchase of the home.
Assume that if the landlord/seller was only interested in renting it,
the fair market rent is $1,000 per month and that he would want first and
last month's rent plus a security deposit of $1,000 as a down payment.
Assume also that the mortgage company's interest rates are at 8% and
the smallest down payment they offer is 5% of the sales price. Taxes,
insurance and private mortgage insurance (PMI) are $303 per month. Closing
costs and prepaids typically cost about $3,000 for a $100,000 home.
| |
Rent |
Own |
Lease
Purchase |
| Monthly Payment |
$1,000 |
$1,000 |
$1,000 |
| Down Payment |
$3,000 |
$8,000 |
$4,500 |
| 1st Year Cash Paid |
$13,000 |
$20,000 |
$15,500 |
| 1st Year Equity Earned |
$0 |
$791 |
$3,000 |
Example 2
Find the rent figure below that most closely resembles your monthly
rental payment to determine how much money you are throwing away each year
in rent.
| Rent |
1st Year |
2nd Year |
3rd Year |
| $600 |
$7,200 |
$14,400 |
$21,600 |
| $700 |
$8,400 |
$16,800 |
$25,200 |
| $800 |
$9,600 |
$19,200 |
$28,800 |
| $900 |
$10,800 |
$21,600 |
$32,400 |
| $1,000 |
$12,000 |
$24,000 |
$36,000 |
| $1,100 |
$13,200 |
$26,400 |
$39,600 |
| $1,200 |
$14,400 |
$28,800 |
$43,200 |
| $1,400 |
$16,800 |
$33,600 |
$50,400 |
| $1,600 |
$19,200 |
$38,400 |
$57,600 |
| $1,800 |
$21,600 |
$43,200 |
$64,800 |
| $2,000 |
$24,000 |
$48,000 |
$72,000 |
Example 3
A side-by-side comparison of the rate of equity accumulation between a
mortgage and a lease purchase contract. Both have the exact same monthly
principal and interest payment of $900.
| |
Mortgage* |
|
Lease
Purchase** |
|
| Month # |
Principal |
Interest |
Principal |
Interest |
| 1 |
$82.29 |
$817.67 |
$250.00 |
$650.00 |
| 2 |
$82.84 |
$817.12 |
$250.00 |
$650.00 |
| 3 |
$83.39 |
$816.57 |
$250.00 |
$650.00 |
| 4 |
$83.95 |
$816.01 |
$250.00 |
$650.00 |
| 5 |
$84.51 |
$815.45 |
$250.00 |
$650.00 |
| 6 |
$85.07 |
$814.89 |
$250.00 |
$650.00 |
| 7 |
$85.64 |
$814.32 |
$250.00 |
$650.00 |
| 8 |
$86.21 |
$813.75 |
$250.00 |
$650.00 |
| 9 |
$86.79 |
$813.17 |
$250.00 |
$650.00 |
| 10 |
$87.36 |
$812.60 |
$250.00 |
$650.00 |
| 11 |
$87.95 |
$812.01 |
$250.00 |
$650.00 |
| 12 |
$88.53 |
$811.43 |
$250.00 |
$650.00 |
| 13 |
$89.12 |
$810.84 |
$250.00 |
$650.00 |
| 14 |
$89.72 |
$810.24 |
$250.00 |
$650.00 |
| 15 |
$90.32 |
$809.64 |
$250.00 |
$650.00 |
| 16 |
$90.92 |
$809.04 |
$250.00 |
$650.00 |
| 17 |
$91.52 |
$808.44 |
$250.00 |
$650.00 |
| 18 |
$92.13 |
$807.83 |
$250.00 |
$650.00 |
| 19 |
$92.75 |
$807.21 |
$250.00 |
$650.00 |
| 20 |
$93.37 |
$806.59 |
$250.00 |
$650.00 |
| 21 |
$93.99 |
$805.97 |
$250.00 |
$650.00 |
| 22 |
$94.62 |
$805.34 |
$250.00 |
$650.00 |
| 23 |
$95.25 |
$804.71 |
$250.00 |
$650.00 |
| 24 |
$95.88 |
$804.08 |
$250.00 |
$650.00 |
| Total |
$2,134 |
$19,465 |
$6,000 |
$15,600 |
* Mortgage: Loan amount of $122,650. Amortized over 30 years at
8% interest. Does not include taxes, insurance, PMI, association dues or
special assessments which will raise your monthly payment. You will have
to wait 169 months (14 years) before principal will begin to accumulate at
a rate of $250 per month! ** Lease Purchase: Sales price of
$122,650 (hypothetical). Option matures in 2 years. You do not have to pay
taxes, insurance, PMI, association dues or special
assessments.
Jeff Beaubien, www.Lease2Purchase.com is the President and founder of Beaubien Investment Company in
Howell, Michigan. He specializes in creative real estate techniques, but focuses on the most
powerful technique of them all; the lease purchase contract.
As a result of his success in real estate, Mr. Beaubien is the author of his real estate
course, The Lease Purchase Handbook.
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