Sandwich Lease – Lease a property for $750 per month and sub-lease it for $ 900 per month, that would provide $1800 a year income and would cost a month or two deposit.
Buy for ½ – Option Back – A common procedure for the distressed seller of a property or a note is to buy the property or the note for half price and give the seller the option to buy it back within two years for half-price. This will normally return about 18% interest and possibly much more, if they do not buy it back.
LEASE OPTIONS ARE BEST IN DOWN MARKETS
By Jack Shea
Real estate and business cycles repeat themselves. There have been 20 business cycles in the past 100 years. The downside recessions averaged 14 months long. The upside recoveries averaged almost four years. The current 2012 down market may last several years. Problems with oversupply, difficult financing and a declining economy present a dim view and possibly a grand investment opportunity. (National Bureau of Economic Research)
Lease options offer the best tool for controlling property with a minimum investment and less risk in a declining market. They deliver tax benefits and the ability to do a 1031 tax-free exchange with the gain, without ever owning the property. Experienced
investors use the option to maximize profits tax-free, especially in this chaotic investment environment. The power and leverage of options are widely used in the business and financial world. They have also been misused and are a contributing factor to the 2008
Wall Street collapse.
Why are options a favored technique? They are not well understood in the market by investors, owners, realtors, attorneys or escrow agents. There are few books or courses that cover advanced application of options in buying or selling. A working knowledge of the legal and tax implications of options will empower the user to acquire real property, personal property (mobile homes, vehicles, etc.), notes and other rights with personal, business or IRA funds.
The option buyer pays a fee for the right to purchase at a set price some time in the future. This unilateral contract allows him to buy or not, an unusual but enforceable legal concept. An option is personal property, but can be exchanged tax-free. It can control all of the profit in a transaction. It can be invisible, portable, private and not attachable.
If a property drastically declines in value, the option can be abandoned at a minimum loss. The real cost of funds in option transactions is usually lower than market rates, a considerable benefit.
A special agreement is required to capture all the tax and ownership benefits of a lease purchase. Additional documents, such as escrow instructions, deeds, notes and mortgages are also executed to protect all parties equally.
A different approach is used for tenants who desire a rent-to-own lease. Due to the possibility of a lease option tenant being considered having a title interest in the property, a Contract for Option is used. This avoids having to foreclose a non-paying tenant.
Several other profitable applications of options will be discussed in detail. The most important of these is the use of options to multiply IRA accounts. Fourteen different strategies will be covered. The control and purchase of notes using options is another available technique.