|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
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
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.
earnings potential for the landlord/seller is tremendous since a
well-negotiated deal will reap profits at every stage of the
Here are some features and benefits for the
- 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
- 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.
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.
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
- 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
- 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
- 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, 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
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:
possibilities are endless.
- 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?
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
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.
Back to Real Estate Investing Articles
As a result of his success in real estate, Mr. Beaubien is the author of his real estate
course, The Lease Purchase Handbook.