How to Flip a Lease Option Contract
Sometimes you must look for nontraditional ways of financing a home, especially in a housing market where credit requirements are very strict. Lease-option contracts are a way to purchase a home without the immediate hassle of a mortgage company or a bank. Lease-option terms can typically last for two to five years, but this is not set in stone. This form of financing can also work to help an investor flip a home. House flipping is buying a home, rehabilitating it and reselling in a very short period. Here's how you can flip a lease-option contract.
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Instructions
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Locate a home and a seller willing to enter into a lease-option agreement. A lease option is a real estate deal between buyer and seller. The buyer and seller agree to a selling price, down payment, monthly payment and length of the option agreement. At the end of this contract, the buyer must then obtain a traditional mortgage or pay the owner cash to close on the home. The buyer can also pass on the option to buy, in which case it will expire; the buyer will still be a renter and can move on. Be sure to negotiate a sublease clause and no penalties for early payoff.
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Record the contract. Have the contract notarized and file it with your local clerk's office. This will put your lease-option contract on public record. It will also protect you in case the seller tries to renege on the agreement.
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Rehabilitate the home. House-flipping principles dictate that you buy a home cheap, rehabilitate and then resell for a price higher than your purchase price. According to those principles, your additions should add value to the home, warranting a higher sale price. Follow the principles of flipping while rehabbing. Use complementary colors, focus on the kitchen and bathrooms, get new carpets if needed and fix the leaks and cracks.
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Find a buyer or a tenant. Advertise the home well and hire a Realtor. When someone buys the home, you pay the seller who holds your lease option. You can also decide to sublet the home. The new tenant would pay you rent and you would pay the original seller. You would then have to get traditional financing at the end of the agreement, per the original terms of the lease option. However, if the tenant defaults, you are stuck with the home and the payments.
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