Earn $22,000 on Your First Lease Option Deal!

What's up everybody? If you want to know how to get into lease options and how that strategy works, I have the perfect call and the perfect video for you. Tune in. Before we dive into this call about lease options and how to navigate these, I want to invite you to my free Facebook group called Painless Flipping. And all you got to do is just type in Painless Flipping in Facebook. Join and you're going to be able to get a bunch of materials, you're going to be able to have masterclasses for free and a free community that will help you grow in your real estate journey. So let's talk about lease options. What are lease options? Lease options are buying a property or renting a property with the option to purchase it. So lease option is the exact same thing as a rent-to-own, okay? It's just a different way to say it. Lease option is saying I'm going to lease this property until I have the option to purchase it. Rent-to-own, I'm going to rent this property to have the option to purchase it. When you do a lease option, you put someone in the property as well. You can lease it to someone else, right? Does that make sense? So if you go ahead and rent this property and then you say, "Hey, owner, I'm actually going to have an option to re-lease this, do a sublease to someone else." That person, you can sublease it to someone else for a higher rent. You can also get an option, basically says like, "Hey, if you want to buy this house in 2 years, this is the price," and you can get an option fee. Now, I'm not the expert at lease options. That's not something I particularly or specifically focus on, but I have an expert that is, and I bring him on and I interview him. So check out how he got his first deal and how he's using lease options to do more deals. Let's dive in and see how he's doing it and how you can do it too.

Let's talk about that first deal you got. You made $2,000. Tell us about how you got $2,000 on your first real estate deal.

We focus on lease options, rent-to-own, and so it was a joint venture deal with my partner and mentor. Uh, it was an out-of-state deal, not, not in Colorado. Minnesota. And what was a lot of cool things about it, basically, we brought our investor, investor came in and bought a house for somebody that couldn't get a loan. It turned out he was a real estate agent, didn't have his full 2 years to be able to get a loan, he needed that track record. And so he actually picked out a duplex, was able to rent out one side and live in the other.

Okay.

And Within, I think it was a year and a half, he was able to get a loan, walked into some equity. Like, it was during COVID things were going up and up and up. And so walked into equity, our investor walked in, or, you know, made monthly income and a back-end payday. So everybody was happy. And this agent, he was able to buy a single-family home for himself. And at the same time, and turn that duplex into 2 doors, 2 rentals, all in it within a year and a half. It was, it was awesome.

Let's break this down, because a lot of people that listen to this podcast are brand new. So let's So you got— you made $2,000. How did you make the $2,000? Was it from the option on the lease? Like, did they have to put some money down in the beginning? Was that the option payment? Yep.

They had to put some money down, have some skin in the game. That's why we like lease options. They've got skin in the game compared to a regular renter. Right.

Okay. So you made money on the option. I'm assuming you split— it was probably $4K and you split it with your mentor.

He got more. But, you know, he, he went out and found the duplex and made the offer like he's doing a lot of the work.

Okay.

We were just more of the connector.

So, okay, so you— so this is how it works. He found the deal and then it was— was it on the MLS or do you remember?

Yeah, I believe it was on the MLS and the buyer was— I don't know how he connected with him, but he had the buyer. So there's value in that.

Did he buy— your mentor take it down and buy it with private money, hard money? What did he end up doing?

No, our investor bought it with a loan. Yep.

Just a loan. Okay.

Yeah.

So the investor bought it on a loan and then, then you put someone else in there as a lease option.

Yep. They just had a lease with an option agreement to buy it.

And it was an agent. You're saying the agent is the one that took over as a lease option?

Yep, exactly. And what's cool is he now helps, you know, my partner in Minnesota screen tenants because he's been through the process as a tenant.

Wow. Interesting. Okay. Because I did hear about this company that does— they don't— I don't think they take options. They don't like take money up front. They just buy properties off the MLS for cash and then they do lease options. And then every year that you don't exercise your option to buy it, the price goes up and the rent goes up. I don't know if you've heard of that. I can't remember the company's name.

There's multiple companies and different ways. In fact, I, as an agent, I teach other agents through a continuing education class about this whole industry and how, yeah, how we can all do it and do it correctly so that the end goal is that those people can become homeowners and buy, right?

Yeah.

That's not always the case. In fact, industry-wide, a lot of people don't end up buying, which is oftentimes the fault of the company that didn't screen correctly.

Yeah. Yeah. Because you don't want to take option— their option money, like their down— whatever you can say. Can you say it's a down payment or not really? It's an option payment.

It's a non-refundable option consideration is the terminology. They can use that if you, if you're giving them credit for that money they put down, they can use that for down payment and closing costs. Right.

But if they don't qualify, then they kind of lose it pretty much.

It's non-refundable. Non-refundable.

Right. And if you don't, if you say, hey, you have a lease, I'm giving you a lease option, you can exercise your right to buy this in a year, but you bring someone there, you know, they're not going to qualify in a year. You pretty much, are you saying that's kind of the shady, not shady, but that's like where it could go wrong if you like take a big option payment, but you know they can't qualify, right?

Yeah. And so like screening them well, looping in a lender in the beginning to really figure out like, where are they now? What's it going to take to get them to the— and then also figuring out how much time to give them because like we start with them first. If they need a year, let's give them 2 so their back's not against the wall. Maybe 3 years. You know, we'll do up to 10 years actually. For sure. Yeah.

So, so do a lot of people do this? Where do they, um, Will buy a property with a traditional, like FHA or conventional loan and then sell it on a lease option?

Yeah. I don't know how many people are doing it individually like, like we are because like that company you're talking about, they probably have a big fund behind them.

Oh man, they probably— yeah, they do it. I think they have like over like 15,000 homes or something.

Yeah, yeah, yeah. BlackRock's behind one of them. They're probably paying all cash and keeping it as cash, not putting loans on it. We like to put a loan on it and leverage that, you know, make it— an investor can get multiple deals by leveraging.

So that was your first deal that you did, and then you're, you're continuing and progressing and doing it more and more. Is that right?

Yeah, exactly. Yeah, we've done multiple joint ventures with our partner, and, and then I've done them on our own, myself and Toby, my, my business partner here in Colorado.

Oh, cool. How long have you been doing this? For everybody that's watching, how did you start? Just recently? Have you been in it for a long time?

This is year 3.

Okay, year 3. Are you doing full time now? Yep. Wow. Okay. So where are you able to find most of your properties that you're able to do lease options for?

Most of ours in the past have been out of state, outside Colorado.

Why is that?

Just those joint venture deals. You know, our partner had the buyer already in the Midwest. Some others came through my brokerage, eXp. You know, I'm pretty well known throughout eXp. For doing this. And so I'll have people come to me like, hey, got somebody that can't get qualified, what can you do? So, gotcha.

Yeah, when you say you have your, your investor, your buyer, and he's, he's, he's the one that's coming in with the getting the loan, is that what's happening?

Two buyers. There's the, the resident or tenant, the end buyer, and then there's the investor who's a buyer in the beginning.

Which one is the most difficult one to find?

Finding good tenant buyers or resident buyers— I like to say resident, right? Um, that's harder to find because there's a lot of people that can't get loans, right?

Of course, yeah, especially right now, right?

Yeah, it's getting harder and harder. There's more programs, but they're— the guidelines are pretty, pretty tight.

So where do you find— where are you finding—

sorry to interrupt—

where are you finding these, uh, these tenant buyers?

Most of them are through relationships I have in the industry, people that run across people that can't get qualified.

So, okay, so you, um, you find an investor that— how do you pay that investor out for taking the property? Like, or do you get paid out like a fee, a part of the option fee? Like, how do you get compensated?

Yeah, well, there's two different ways we do it. I get paid part of the option fee, and then as a licensed agent, I can pick up the buy side commission, which may be difficult if you're following news with the National Association of Realtors and the lawsuits going on. That's, that's a whole rabbit hole.

Oh wow, something crazy is going on over there.

A huge shakeup. Yeah.

What's going on? Tell us about the shakeup. We don't know. I don't know what's going on.

Yeah. So traditionally, or in the past and how it's currently done, the buyer— or I mean, the seller commits to paying all the commissions for the listing agent and the buying agent, right? And that's split between the two. Now they're trying to make it so a buyer agent is going to have to get paid outside that transaction, like get paid directly from the buyer. The challenge is like most buyers, especially first-time homebuyers, don't have extra money to pay above and beyond their down payment and closing costs.

Wow.

They're just barely making it work, right?

So are they trying to make buying buyer's agents obsolete? Like just being like, hey, people can search on the MLS by themselves?

Like, well, I mean, it's kind of going that way in a way, like Zillow and Redfin, all these other sites you can go see properties. Yeah, but they're, they're left out in the cold without any backup, somebody knowing all the contracts. And just there's so many ways you can, you know, get taken advantage of just by not knowing what's going on.

Right. Yeah, it's kind of confusing. I didn't know that was a problem. Is that— you said, is this recent that they're trying to not pay buyer's agents?

Yeah, well, it's been stewing for a couple of years, and there's a bunch of big real estate brokerages that are in the firing line getting sued millions and millions of dollars. So it's, it's messy.

Why would they be getting sued? Aren't they agreeing to— like, the seller of the home is agreeing to pay the buyer's agent commission if they bring the buyer?

Yeah, I think part of it is they're like, it's not transparent. But so that's what, like, what we're doing in my group in eXp, we've been actually splitting that out and making it transparent so everybody sees what the buyer agents make in. So I've had a head of the game for 3 years or more.

What's your outlook on what will happen to that? Do you think they're just going to take away buyer's commissions? What are you thinking on that?

Yeah, and I think what it'll end up being is like, say a purchase price without having the buyer's commission is $300,000 or whatever that number is, the buyer agent would still get paid out of the equity of the house and they just add that on to that final purchase price.

Interesting.

So the seller would still be paying that.

Yeah.

Yeah. I don't know how buyers are going to come up with that money.

Well, hey, dang, bro. So you went from $2K on your first deal to now doing lease options and knowing all this stuff about being a real estate agent and being involved in eXp and being the go-to guy. If you can't qualify for a property, you help people get in through lease options. Is that what's going on?

Exactly. What's cool too is like I'm helping other agents and lenders. Lenders love this too because they can get a loan for the investor and for the buyer in the future. They got one in the pipeline. So that's what's cool is like I'm able to help a lot of people in their business and get people into homes that normally couldn't or would have to wait, you know.

Yeah, and probably feels good getting someone to a home that they probably didn't feel like they could get into.

Totally. It's super satisfying being able to help, being able to help people get into homes. Especially when they were being told no by the bank.

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