There are a few variations of this strategy. One variation can be used by an investor that is short on cash & credit but still wants to invest the little cash that they have in real estate. This investor would sign a rental agreement with the seller as well as a contract that would give them the “Option” to purchase the property at a later date. You can even negotiate it into the agreement that 100% of your rental payments be applied to your down payment when you purchase the property. Generally speaking, you’d only need about $3,000-$5,000 to use this strategy. That money would be used for your “Option Fee” and can also be applied to your down payment.
Another variation of the Lease-Option Investment Strategy is the Sandwich Lease-Option. This is kind of a hybrid between the Buy-&-Hold and the Flipping strategies. An investor would sign a Rental & Option agreement just like in the other variation. But then they would find another person to assign those agreements to. For example:
John Lessor signs a Lease-Option agreement on 123 Main St. He agreed to purchase the property at $200,000 in 3 years or less with monthly rental payments of $1,000. He then finds a tenant/buyer that will purchase the property at $210,000 in 2 years with a monthly payment of $1,100. John now set himself up for a $100 cash flow per month and a $10,000 reward in 2 years.
So as you can see, you probably won’t get rich on just 1 transaction, but Lease-Options can be extremely lucrative