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Article by Doug Pretorius

The Lease/Option: An Adaptable Tool

  Lease/Options have been used in virtually every real estate transaction imaginable. From 1 bedroom condo's to high-rise apartment complexes, from run-down slums to high-end executive homes. Residential, commercial, industrial, even raw land. If it can be bought and sold, it can be Lease/Optioned.

  No matter the particular piece of real estate in question, a Lease/Option can be adapted for a workable deal, as long as the seller and buyer are willing to negotiate.

  The reason Lease/Options are so adaptable is because all real estate transactions are basically the same. Unless a property is purchased with cash-which is rare-someone must make payments, and someone else must collect them. The Lease/Option simply makes it so that those payments are being made to the Owner rather than the bank. Sometimes that's not even that case, it's possible for the Buyer to pay the bank directly, but in this case they are still making the payments in the Owner's name.

  Now, if you're new to learning about Lease/Options, you're probably wondering how I can possibly say that a deal involving a single bedroom condo, can be the same as an 80-story office building. The truth is the only difference is the amount of paperwork involved because everyone wants to be sure where they stand when so much money is involved, the case of a large deal. But essentially the same thing happens: The Buyer will make payments for a period of time and then either purchase the property or walk away from it.

  If you're reading this because you're interested in using Lease/Options as way of making money (as an investor) then it should be obvious that you should start with small properties. The most popular type of property would be a 3 bedroom single family home. These are plentiful in North America and in high demand. But don't forget other residential properties such as 1 and 2-bedroom condo's, townhouses and homes. Or higher-end homes as well. The market for these is smaller, so keep that in mind when you're negotiating a deal.

  Some investors focus entirely on these 'fringe' properties simply because there's less competition. The fact that they exist is proof that there is a demand for them, even though it's less than 3 bedroom homes. With less demand comes more flexibility on the part of the Seller. This can be especially true of more expensive homes in a slowing economy.

  As with any method of real estate investing, you need a motivated Seller. With Lease/Options that motivation must lead to their willingness to accept payments for at least 12 months before getting their money out or getting the property out of their name.

Doug Pretorius first became interested in real estate in 1996 and after a few false starts and hard-knocks began his investing career in earnest in 2000. Doug has mentored countless students all over the world to become full-time investors in their own right and continues to help beginners as time allows.
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