Great Lease Purchase Strategy – The Assignment
The assignment is by far the easiest of the Lease Purchase strategies and requires the least amount of investment and risk in order to do the deal and profit upfront. Instead of taking the property and subletting with an option or sandwich leasing you can actually sell the contract to another. You have created a valuable marketable commodity! You can sell and even create a note by financing the sale of the lease purchase agreement, too.
An assignment is when we negotiate the deal with the owner of a property and it contains all the terms of the transaction within the specialized written contract. We can then assign (which means to sell) the contract to a third party. This can be either the Tenant/Buyer or another investor. This is normally a lease purchase agreement which contains a specific assignment clause with the right to sublet, transfer or convey any rights within the original contract with the owner to another principal party.
Example: I found a property in a good neighborhood/school district. The owner had tried to sell it, had put up a for rent sign since he’d be moving to a new state and didn’t want to get stuck with two mortgage payments. The property was worth $100,000 and the seller had a mortgage for $95,000. His payments were $1000 per month PITI (principal, interest, taxes, insurance). The real estate agents wouldn’t list the home because there was not enough profit to pay a 6% commission. I offered to lease purchase the home with the right to assign and purchase for the balance of the mortgage. I would also pay the $1000 per month with a five year contract and would be responsible for any monthly maintenance/repairs under $100. I would pay $1000 down as option money and the first month rent with a 20 day lead before payments were to begin.
The owner agreed and I began calling all my tenant/buyers from previous ads. One tenant/buyer (with kids) had just files a bankruptcy, but was looking for a home in a good school district and safe neighborhood. He knew that he would need at least 2 years before he would be able to get a new mortgage and save the down payment. He was perfect for this home. I told him he could move into the home, purchase it for the balance of the mortgage and that I will sell him the contract (assignment) for $6500. He only had $3500, but he really wanted the home. I told him that I would take the balance of the assignment fee as a personal note (unsecured) at 0% if he paid on the first of the month. He could pay me $250 per month and pay off the note in 12 months. He agreed. I recovered my $1000, made a $5500 profit ($3500 cash and a $3000 note) and I was out of the deal. Assignments are great for flipping homes without buying them. As usual, everyone wins in a lease purchase.