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Rent To Own / Lease Option - Amir Ben Bassat - Entrepreneur of the Week - Post 3

Rent To Own / Lease Option - Amir Ben Bassat - Entrepreneur of the Week - Post 3

So following on from the depressing post from yesterday, I'm going to reveal to you two methods that gave me a solution to all the same problems we mentioned. Two methods that help to get the sting out of the deal, are similar but very different and are suitable for different types of assets in different situations.

In this post we will talk about the first method rent to own / lease option, a different name that describes the same transaction.

Let's start…

What exactly is a Lease Option?

The Lease Option transaction, as it is called, consists of a Lease (lease contract) and an Option (purchase option contract). In exchange for the option fee we will receive on the day of signing, the landlord will give the tenant / buyer a limited and predetermined period to buy the house at a fixed price in advance. Throughout the period the tenant will be a regular tenant for everything until he manages to get a mortgage and realize the deal.

One of the critical points in the transaction and the only significant difference in tenant rights between a lease option transaction and a regular rental, is the question of maintenance. In a regular lease, all maintenance expenses fall on the landlord, however, in a lease option transaction all current maintenance expenses (up to a certain limit) are the responsibility of the tenant. That is, if there is a blockage in the toilet or a leaking kitchen sink, the tenant will have to call the plumber at his own expense. If there is a leaking roof that needs replacement the responsibility is still our homeowners.

How does Lis Option give us a solution?

I like to compare this to the difference between a rental car and a leasing car. Anyone who has rented a car knows exactly how it behaves (poor car), however when you get a leasing car, when you are responsible for its maintenance and you have an aspiration to buy it at the end of the period, chances are we will treat the car differently as if it were already ours.

Now think about it…

We have a tenant who put us a few thousand dollars on the day of signing in exchange for the right to purchase the house during the period. If the tenant does not pay on time, he will lose the option fee, so he has an interest in being a “good boy” and meeting payments like clockwork. We will combine this together with the fact that he is also responsible for the maintenance expenses and we got a tenant with much less collection problems and no maintenance calls. 😇

Now if we have such a tenant, who does not have to chase after him and who does not call about maintenance problems, why do we even need a management company? 🤯

If things work out right, all that is left is to make sure water company payments (as needed), pay taxes online twice a year and submit monthly bank account statements to the CPA at the end of the year.

Is it worth paying so much money to a management company if that's all the work there is?

Very subjective but usually not…

What happens if it does not work properly and there is a problem with the tenant?

It is important to emphasize that the lease option deal is not a promise of return or quiet and here too problems may arise with tenants.
You may still encounter collection issues, evictions, damages, and any issues that may arise similar to renting to a regular tenant.
Our whole goal is to improve profitability and lower the chance of falling for a wayward tenant who without much effort will obliterate our entire year's return.

So how do you deal with problems?

Simple… Pay as needed…

A tenant stopped paying and cooperating?
We will pay a lawyer / property manager who will do an avication for us
Need to prepare the property for rent again?
It will not be very complicated to bring someone to refresh the house for a fee.

Bottom line in most cases I and investors I work with completely give up on the services of the management company.

Sabba and everything, how do you make money out of it? 🤑

Three main profit centers in lease option transactions

1. The option fee is NONREFUNDABLE. The amount of the payment varies depending on the price of the property and your ability to negotiate.

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