Create Passive Income For Yourself
While Making a Difference For Others
Investing in real estate can be a great way to increase your net worth and establish financial security. Lease- options (aka Rent-to-Own) is an investment strategy used by more and more investors because it creates passive income without the risks and hassles associated with owning typical rental properties. For home buyers, it serves as a stepping stone that helps them meet the qualifying requirements to get a mortgage. With strict changes in the mortgage industry, lease-options provide a win/win opportunity for investors seeking secure investments and home buyers seeking ownership.
In order to understand the benefits of a lease-option investment and how it works, this article will compare it to the traditional Buy and Hold investment that is familiar to many investors.
Buy and Hold Strategy – The Buy and Hold strategy is the most common strategy that is used by many real estate investors. An investor would purchase a property and find a tenant to rent it. The tenant typically signs a minimum 1-year lease and pays a small damage deposit. Over time, the tenant helps to pay down the mortgage while the property appreciates in value.In a perfect world, tenants always pay rent on time, there are no vacancies, and properties fix themselves. In the real world, however, the investor needs to anticipate repairs, maintenance, vacancies and possible tenant issues. He can reduce his risk by collecting enough rent to cover all the mortgage and expenses and setting aside a con- tingency for repairs and maintenance. To reduce his operating cost, the inves- tor may choose to become the landlord instead of hiring a property manager.This strategy requires a long-term horizon, because the profit is only re- alized when the property is sold or refinanced. The investor also needs to research the markets carefully to find properties in areas of growth and where economic fundamentals are strong.
Lease-option Strategy – A lease-option investment has some similarities to a Buy and Hold investment, but with very different terms. An investor purchases a property for a tenant-buyer, and the tenant-buyer leases the property with an option to purchase it in the future for a pre- agreed price. In exchange for this option, the tenant-buyer pays the investor a sizeable, non-refundable down payment and a premium on top of each monthly rent. This minimizes the risk for the investor, because it reduces his cash investment and provides a gener- ous monthly cash flow. Since fixed appreciation is also factored into the selling price, the investor will also expect a predictable return on his investment.For the investor, tenant issues will also be a thing of the past, because the tenant-buyer will have a vested interest to maintain the property and perform any minor repairs. When the tenant-buyer is ready to qualify for financing, he will purchase the home from the investor and the in- vestor will earn a net sale profit.
Progressive Performance – Usually, real estate investors like to find short-term deals so they can realize their profit sooner, but with a lease-option, longer is better. Strategic Housing offers lease-option investments that are based on a 1-year term, with renewable annual terms up to 5 years. The performance of each investment increases each year, which means the longer the lease, the higher the returns for the investor.
Making a Difference – Strategic Housing’s mission is to create passive income for investors while helping families achieve home ownership. By becoming an investor, not only are you elevating your own financial suc- cess, but you are also helping someone to realize a dream. Now that’s something to feel good about.