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Lease Purchase Investing- How Good Is It

Oct 11, 2007
Lease purchase investing is not everyone's cup of tea. Although not very complicated it does have its nuances. However, if a novice investor is determined to succeed, he can certainly take advantage of the opportunity to make a good cut from a lease purchase investment deal.

All investment avenues are open to situations involving an element of risk. This is true in the case of lease purchase also. But one should not allow the risk to obscure its relative advantage over other types of real estate investment. A lease purchase deal gives all ownership benefits and control to the investor without legal ownership. The position is far beneficial and very different than in any other case. A lease/purchase deal allows the investor to live in the house for a period of one year on payment of rent, with an option to buy the property at a price agreed today. For this he has to pay a nonrefundable deposit of a mutually agreed amount. This deposit is adjustable in the sale price if the investor decides to exercise his option to buy the property. On his decision to buy, a portion of the rent is also adjusted towards the final price.

Lease purchase is a unique real estate investment strategy that can be used to control all types of property whether condos, single family homes, multi-dwellings or other types of real estate. The strategy can be employed in any type of market and allows the investor make a profit by commanding an increased rent/price, anywhere from 15 to 20 percent above market rates while still paying the full price to the initial seller. A serious lease purchase investor can usually close more number of deals every year as compared to other real estate investors.

Here is how a typical lease purchase would work to create a win win situation for all parties. A potential seller rents out and transfers control of the property to a potential buyer/investor with an option to let him buy the property within a specified future date for a price already agreed to. The investor pays a non-refundable down deposit against the future purchase. The seller can use the deposit to avoid a foreclosure on his credit report by clearing any defaulted payment and getting his mortgage a current status or for any other purpose. With the rental income coming in each month, his mortgage payments also start getting paid on time.

The investor on the other hand benefits first by saving on the rent he pays; say $1500/month. The position here is different from that in a traditional rent situation. Here the rent payments are adjustable against the final price. The down deposit he makes is as little as $10000 against a house valued $200,000. This entitles him to get into lease/purchase of the property with another buyer for above market rent, say $2000/month and a down deposit of $15000. He can negotiate for sale of the property for an above market price, perhaps $220,000! If the buyer does not exercise the purchase option, he just keeps the $15000 non-refundable deposit and looks for another buyer who can give another deposit against a fresh lease/purchase deal.
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