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Article by Jeff Beaubien

Features and benefits of a Lease Purchase transaction

"The best ad is a good product."

~ Alan H. Meyer ~

The Lease 2 Purchase contract is the quickest, easiest and least expensive way to buy, sell or invest in real estate. It replaces the typical adversarial relationship that usually exists between buyers and sellers with a win-win method of transferring real estate ownership. As a result, it is highly sought after by those who know about its powerful features and benefits.

Landlord/Seller Benefits

If you don't need much cash up front ($1,000 - $20,000), the best way to get your full asking price and a higher than average monthly rent for your home is to sell it on a Lease 2 Purchase. Since you are offering a huge value and attractive financing to assist the tenant/buyer, they tend to be willing to pay a higher sales price and higher than average rent. Tenant/buyers can easily understand the concept of trading price for time and value.

When you Lease 2 Purchase your home, you receive a non-refundable option deposit. This amount can be as much (or as little) as you wish. You will receive a majority of your profits at closing when, and if, the tenant/buyer exercises their option to buy. You also win if the tenant/buyer defaults or allows the option to expire since option deposit is non-refundable. You can begin the whole process over again by collecting another option deposit from another tenant/buyer.

The earnings potential for the landlord/seller is tremendous since a well-negotiated deal will reap profits at every stage of the game.

Here are some features and benefits for the landlord/seller:

  • Top Sales Price, Even if Demand is Low for Your Home: You attract more buyers who are willing to pay a premium because of the exclusive financing terms and value you're offering.
  • Higher than Usual Rent: Since you are flexible on your financing terms and are offering a tremendous value, you can demand a higher than usual rent.
  • Positive Cash Flow: Since you can demand a higher than usual rent, your positive cash flow will increase.
  • Non-Refundable Option Consideration Up Front/Minimum Risk: When a tenant/buyer executes (signs) a Lease 2 Purchase contract, you receive an non-refundable option deposit that is yours to keep should they default or decide not to buy.
  • No Realtor Commissions: Since you are selling your home by owner, you will avoid paying a 6-10% realtor commission which can add up to thousands of dollars. You will also save on advertising costs because your home will be sold more quickly.
  • Attraction of the Highest Quality Tenants: Because you are renting to tenants who have a vested interest in your home, they think like homeowners and tend to take good care of it.
  • No Maintenance, No Landlording: Tenants who have a vested interest and believe they are a homeowner may feel a "pride of ownership" that encourages them to pay on time, perform maintenance and make improvements to your home (See the I Am Landlord/Seller Agreement in APPENDIX E).
  • Tax Shelter is Maintained: Because you remain on the deed until the option is exercised, you maintain all of the tax benefits of ownership.
  • Larger Market of Buyers: You are marketing your home not only to traditional buyers, but also to renters and investors. These three groups make up over 85% of people seeking to buy real estate.
  • No Long Vacancies: When you advertise your home as a Lease 2 Purchase your phone will literally ring off the hook. Typical turnover time is days or weeks instead of months or years.
  • Peace of Mind: It is safer than conventional rentals because of the quality of the tenants and their vested interest in your home. It also means that someone is living on-site who will watch and guard your home against fire, theft, vandalism, etc.
Tenant/Buyer Benefits

If you are in the market to buy a home, you are probably aware of the advantages home ownership provides (tax shelter, appreciation, security, etc). If you are actively seeking homes for sale on a Lease 2 Purchase agreement, you either (1) cannot purchase a home through conventional means, (2) are not ready to make a commitment, (3) are a real estate investor, (4) are very smart or (5) a combination of the above.

The Lease 2 Purchase contract provides you with many features and benefits, but perhaps the most powerful one is the rate at which you accumulate equity. Compare any lender's loan amortization schedule to that of a Lease 2 Purchase contract and you'll quickly see that the Lease 2 Purchase contract wins hands-down -- every time. Moreover, the buying power of a Lease 2 Purchase contract can quickly and easily land you a home that you would never qualify for the conventional way.

Here are some features and benefits for the tenant/buyer:

  • Faster Equity Growth: Equity accumulates much faster (five times or more!) than with conventional financing through a bank or lender (See APPENDIX B - Equity Charts).
  • Rent Money is Working Toward the Purchase of the Home: Every month a portion of your rent payment (typically $100-$500, depending on the home) is credited towards your down payment or off of the sales price (See APPENDIX B - Equity Charts).
  • Option Consideration is Credited Towards the Purchase of the Home: When you sign a Lease 2 Purchase contract, you will pay the seller an option deposit. This money is your vested interest in the home and will be fully (100%) credited to you when you buy the home.
  • Minimum Cash Out of Pocket: When you purchase a home conventionally, you must pay at least 5% down plus closing costs and prepaids. When you buy with a Lease 2 Purchase, you only pay first month's rent and a small option deposit. This will save you between 25% and 85% every time you buy a home.
  • Frequently No Down Payment at Closing: Since you have given the seller an option deposit and you have been receiving monthly rent credits, there will frequently be very little or nothing left to pay for a down payment at closing.
  • Profits from Appreciation: Since the sales price is locked in before closing (as specified in your agreement), any increase in property value will mean that your equity (what you owe minus what it's worth) is increasing in the home .
  • Possible Assignment (Sale) of Contract for a Profit: If you are allowed to assign your option (it will be in your agreement), you may assign it (sell it) to a third party for a profit (See the I Am Tenant/Buyer Agreement in APPENDIX E).
  • Increased Buying Power: When you buy a Lease 2 Purchase home, you can put down as little as first month's rent and a $1 option deposit (See APPENDIX C - Case Studies: Joslin Lake). Compare that to a typical bank or lender who requires 5-20% down plus closing costs and prepaids.
  • Credit Problems are Okay: Qualification restrictions simply do not exist. You will be approved at the sole discretion of the seller.
  • No Lengthy Escrows or Mortgage Approvals: Your approval will be based solely at the discretion of the seller instead of a lender who can take up to a month (or longer) to render a decision.
  • Control of the Home: You will be put in full legal control of the home for a specified period of time without actually having to own it.
  • No Taxes, Less Liability: Since you do not own the home (yet), you will not have to pay property taxes and your liability exposure will be dramatically reduced.
  • Quick Move In Time: You can typically take possession of the home in less than one week instead of conventional move in times of one to three months after your offer was accepted.
  • Maximum Leverage: You are spending very little (or no) money to control a very expensive, and very profitable, piece of real estate.
  • Time: Before you actually buy the home, you will have 6-24 months (depending on your agreement) to repair your credit, find the best interest rates, investigate the home and research the neighborhood and/or schools.
  • Minimal Maintenance: Large maintenance problems or any maintenance problems that exceed a certain amount of money are delegated to the seller (see the I Am Tenant/Buyer agreement in APPENDIX E).
  • Privacy: Your name will not be on the deed until you exercise your option to buy.
  • Peace of Mind: You will have full control of the home and can maintain it or improve it however you wish.
Investor Benefits

As an investor, you are probably aware of the principles of leverage (the use of borrowed funds to improve one's capacity and to increase the rate of return on an investment). With the Lease 2 Purchase contract, you can buy (control) properties for literally no money down without using a lender or going through the loan application process. Additionally, the Lease 2 Purchase contract is so quick and easy to use, you can significantly increase your productivity and, as a result, your cash flow. You will receive the same features and benefits as the landlord/seller or the tenant/buyer, depending on which role you take in the transaction.

Realtor Benefits

As a realtor, you would be wise to add the Lease 2 Purchase contract to your toolbox of income producing techniques. Imagine opening your doors to a world of buyers and sellers that nobody else in your office has even considered. In fact, every buyer and seller you meet is a potential Lease 2 Purchase candidate. This can provide a special market niche for you. And having a special niche is what separates the top producers from the mediocre ones.

Never lose another deal because your seller is overpriced or because your buyer can't get financing. A Lease 2 Purchase requires half the work of selling a home the conventional way so you will be much more productive (and wealthy). Furthermore, some of the most successful professionals in the world, including insurance agents, movie stars, musicians and authors benefit from a little-known financial secret about the best kind of income you can earn; residual income. What do they know that you don't? Simply put, they know that residual income provides for a steady cash flow that is paid at a date after your work has been completed. Imagine the income you'll receive from lining up one or two quick and easy deals every month for the next twelve months.

Or instead of waiting one or two years for the options to mature, you could:

  • Consult with people on an hourly basis?

  • Pay a referral fee to someone for lining up these opportunities for you?

  • Charge an up front fee for your services instead of waiting for the residual income?
The possibilities are endless.

More important, you are in a position to make the Lease 2 Purchase option known to a select group of potential clients who would not qualify in any other way to purchase. They will remember the opportunity you gave them. At minimum, you have a fiduciary responsibility to determine whether a Lease 2 Purchase agreement could help them solve their real estate problems. It may be exactly what they need.
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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