Not an expert, but here goes:
1. Seller needs out and doesn't need all cash up front.
2. You lease the property with an option to buy, meaning you pay rent and give a (usually) non-refundable option payment for the right to purchase.
3. You find a tenant/buyer for the property. They pay you an option payment for the right to buy from you. They pay you rent, which you use to pay your rent to seller.
4. When your tenant exercises their option (they buy from you), you exercise your option with your seller (you buy from him). You use the cash from your buyers close to close with the orig. seller. You typically would price the house higher than your deal with the seller and you keep the difference at closing. Also, their rent payment to you could be higher than yours to the seller, meaning money in your pocket.
Advantages to the seller: relieved of monthly payments and house maintenance while you are selling it. Maintains good credit rating based on this mortgage payment being timely.
Advantages to buyer: doesn't have to immediately qualify for home purchase mortgage (gives them some time to clean up credit and be a homeowner while they're doing it).
Advantages to investor: little money out of pocket (you can recoup your option payment using your buyer's option money). If you work the numbers right, you can make money on the option payment, any monthly rent higher than you owe and, if you sell for higher than your contract with seller, the difference in selling price.
Disadvantages: if something happens to the orig. seller's credit that attaches to the house, you will have to do something about it before you can sell to your buyer (the seller is still on title and credit liens can attach to the property).
Read up here on TCI and you should find more detail (and probably a better explanation...)
thanks for the explanation. are most people making money by being the middle person?(from your description) Is it also possibe to make money being the homeowner and leasing the property to someone else? by having them pay a higher rent with the option of buying the property at a predetermined price (more than you owe)? is this another way they work???
You are getting the picture. People get rid of property for any number of reasons. The more trouble they have selling a property through traditional means or the more urgent their need to relieve themselves of this property is the very reason CREI exists. Using a Lease option, suject to, or a wrap, you as an investor can make money on the front middle or back of a deal, or all three through negotiation.
Not an expert, but here goes:
1. Seller needs out and doesn't need all cash up front.
2. You lease the property with an option to buy, meaning you pay rent and give a (usually) non-refundable option payment for the right to purchase.
3. You find a tenant/buyer for the property. They pay you an option payment for the right to buy from you. They pay you rent, which you use to pay your rent to seller.
4. When your tenant exercises their option (they buy from you), you exercise your option with your seller (you buy from him). You use the cash from your buyers close to close with the orig. seller. You typically would price the house higher than your deal with the seller and you keep the difference at closing. Also, their rent payment to you could be higher than yours to the seller, meaning money in your pocket.
Advantages to the seller: relieved of monthly payments and house maintenance while you are selling it. Maintains good credit rating based on this mortgage payment being timely.
Advantages to buyer: doesn't have to immediately qualify for home purchase mortgage (gives them some time to clean up credit and be a homeowner while they're doing it).
Advantages to investor: little money out of pocket (you can recoup your option payment using your buyer's option money). If you work the numbers right, you can make money on the option payment, any monthly rent higher than you owe and, if you sell for higher than your contract with seller, the difference in selling price.
Disadvantages: if something happens to the orig. seller's credit that attaches to the house, you will have to do something about it before you can sell to your buyer (the seller is still on title and credit liens can attach to the property).
Read up here on TCI and you should find more detail (and probably a better explanation...)
Andy
thanks for the explanation. are most people making money by being the middle person?(from your description) Is it also possibe to make money being the homeowner and leasing the property to someone else? by having them pay a higher rent with the option of buying the property at a predetermined price (more than you owe)? is this another way they work???
You are getting the picture. People get rid of property for any number of reasons. The more trouble they have selling a property through traditional means or the more urgent their need to relieve themselves of this property is the very reason CREI exists. Using a Lease option, suject to, or a wrap, you as an investor can make money on the front middle or back of a deal, or all three through negotiation.
Good Luck,
Shawn(OH)