Why Rent To Own Contracts Can Be GREAT For Investors - YouTube

Vance: This is the Real Estate Guide to Success video series.

I'm Vance Poindexter.

Once again I'm here with Ronnie Adams.

Ronnie: I'm here one more time.

Vance: Okay, so today we're going to talk about the lease to buy option.

This is where you have somebody who's renting from you sign a contract to say eventually,

over a period of time, they're going to be able to buy that property from you to take

it off your hands.

Why would somebody do that?

What's the benefit from your perspective and the benefit from the renter's perspective

as well?

Ronnie: The renter would be looking at it like, "Okay, I'm not qualified right now for

whatever reason may be.

Maybe my credit's not good enough.

Maybe I don't have enough for the down payment."

Most of the time it's the down payment.

They don't have the money.

So if I do a lease option to buy, then I say to you, "Okay, I'm going to rent this house

for a year, two years," whatever the time period we agree on.

And at the end of that time period I'm going to purchase the house.

Now, once I entered into this type of contract with somebody, if they hold up to their end

of the bargain, I have to sell it.

So it locks in with the tenant where they're like, "Okay, I'm not just renting this property.

I know that I'm going to buy it.

The landlord has to sell it to me at that point."

Vance: Can the renter get out of it?

I mean you sound...

Ronnie: If the renter were to get out of it, if you were to rent a property, then you have

a security deposit of a month and a half.

But generally on a lease option to buy you can put down that on double that amount if

not triple.

You would come up with whatever you and the landlord came up with that number that he's

comfortable with.

So if you get out of it for whatever reason outside of that you can't qualify, then you

would lose that upfront.

Vance: You would lose it.

Okay.

Ronnie: Yeah, you would lose that upfront money.

And on the side of the landlord, what he's looking at is for whatever reason I don't

want to rent this house.

Vance: Okay, so this is where we're having a little argument.

Ronnie: Yeah, we were off camera.

Off camera.

Vance: So I'm a beginning investor.

I'm making $1,000 a month or whatever renting a property, why in the world would I ever

want to lease and then sell a property to somebody when I'm making that kind of profit.

I don't understand this whole premise behind lease to buy.

I'm making money.

Ronnie: Alright, here is the thing too that we have to remember if we are renting a property

and let's say unless I don't have a mortgage on here, that $1,000 a month on the rent that

I'm charging is being offset by a mortgage and some other things, too.

So I may not actually walk away with $1,000, unless we are saying that I'm making $1,000.

Vance: I don't think it matters if it's 1,000 or it's $800 a month.

Ronnie: Or maybe it might be $300.

Vance: Well, okay.

Ronnie: Let's say it's five.

Vance: You're not making as much as you want.

Ronnie: Exactly.

Okay, but the purpose of this is for the person who was making a constant three, five, thousand,

whatever it is, if he's making that constantly, then he may say, "I'm not going to stop renting

thing.

I'm going to rent forever.

I don't have a problem with that."

So that person may really be like, "I'm never going to do this.

I don't want to sell."

But at some point there's going to be a person out there that says, "I just don't want to

be a landlord.

And I have borrowed property.

Or let's say he borrowed property or she borrowed property thinking that they wanted to be a

landlord, but then said, "I don't want to do it," for whatever reason.

Vance: The situation has changed.

Ronnie: Exactly.

Vance: It's not as much or it's in a bad area [0:03:52].

Ronnie: Or they figure that I just don't want...much like what we talked off camera about a particular

property that I had, that I actually made money on but I just hated the area.

And every time that I went to that house it just turned my stomach.

But it was one of these properties that I bought in the beginning.

I was gun ho and after I had bought some other properties I was like, "I don't know about

that one.

I don't like that one."

So that one there, if I could have got somebody to buy it, which I ended up selling it to

a friend of ours.

You know.

Vance: Yes, I do.

Ronnie: Anyway.

But I was able to get out of it.

But if I was able to do a lease option, then where it was I know the person would not qualify.

So this is just a technique that we're giving our viewers that if you have a property that

you know that you have a willing person to purchase, but that person is not ready to

purchase.

So I can do a lease option to buy.

It gives me time to get that person credit worthy and where they at that point would

be buyer worthy.

So I can sell that property at that time.

Vance: I get it.

So I understand why the real estate investor would want to sell it now.

I understand clearly why the renter would want to buy it.

Who takes care of that transaction?

Is that the lawyer that sets up the contract?

How does that actually happen?

Ronnie: Well, actually even if you were to... just like your leases.

You can go anywhere and get a lease.

You can go anywhere and get a document for a lease option to buy.

So you can go....

It's nothing special.

So if it's something that you...

Here's the whole thing.

If you have somebody who you're like, "Okay this person may be a problem," I can just

tell by talking to him.

So I'm going to go to a lawyer to make it more official for that person to make sure,

because I already know that they probably won't go through with it.

And I'm going to keep their money.

So you can do that if need be.

But really, lease options you can just go to Staples.

Vance: So to recap for everybody, lease option allows the real estate investor to get out

of a property for whatever reason.

It could be that area, you're not making as much money as you thought you would, whatever

reason.

It allows the renter to actually purchase the home and for a period of time qualify

and get the buyer.

So both sides of the [0:06:38].

Ronnie: It just spans out some time.

Gives you some extra time for the buyer and the seller.

Really the seller, the buyer.

So it just gives them some extra time to get that person ready to go.

Vance: Alright, lease to buy option.

Thanks, Ronnie.

Ronnie: Alright.