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- Oct 4, 2007
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Czach41 covered the basics pretty well on this subject - one thing of great importance to realize though, is that the lease-option is 2 different contracts. One is for the tenant to "lease" the property, the second is allowing them the "option" to purchase the property at a later date, at a specified price.
If you're going with the lease-option route (or any other method), the greatest importance in order to cash flow is to buy right. For example, if you can pick up a property with a FMV of $103,000 for $75,000, it's going to be much easier getting it to cashflow than if you had purchased it for $95,000. And typically with lease-options, you can command a higher monthly rent or option price or both, just depending on how you structure the deal, and what the market will allow in your area.
Another strategy that works very well w/ the lease-option is to set the option timeline for 12-18 months, and get the tenant to purchase the property. You want this. Although you can get a higher ROI by them not purchasing the property, in the end you do want them to cash you out so that you can 1031 exchange into another property.
I've attached an excel spreadsheet that shows the basics how it works. Notice the tabs at the bottom - these are your subsequent purchases, after 1031 exchanging. The figures as far as insurance and taxes are for what works in my area, yours may be different.
Hope this helps...
If you're going with the lease-option route (or any other method), the greatest importance in order to cash flow is to buy right. For example, if you can pick up a property with a FMV of $103,000 for $75,000, it's going to be much easier getting it to cashflow than if you had purchased it for $95,000. And typically with lease-options, you can command a higher monthly rent or option price or both, just depending on how you structure the deal, and what the market will allow in your area.
Another strategy that works very well w/ the lease-option is to set the option timeline for 12-18 months, and get the tenant to purchase the property. You want this. Although you can get a higher ROI by them not purchasing the property, in the end you do want them to cash you out so that you can 1031 exchange into another property.
I've attached an excel spreadsheet that shows the basics how it works. Notice the tabs at the bottom - these are your subsequent purchases, after 1031 exchanging. The figures as far as insurance and taxes are for what works in my area, yours may be different.
Hope this helps...