Too many investors overlook the lease option as a viable investment strategy, maintaining that it doesn’t make any sense to pay rent for something that you ultimately plan to purchase and resell for profit, the logic being that every month you write a lease check, you are cutting into your profit margin. However, the lease option provides the investor with considerable flexibility without losing too much money (flexibility is an option I would happily pay for). Especially for start-up investors or those who lack the raw cash capital to make a down payment on a home, lease options can be a great way to secure the investment in a competitive market.

Almost every investor has had more than one great deal slip through their fingertips simply because they didn’t have available cash on hand to make an offer or down payment. Although the seller was happy to do business with you, perhaps he was happier to do business with someone who could pay him. What if there was a compromise? It’s called the lease option. The buyer, who perhaps can’t afford the full down payment on the home, negotiates with the seller to temporarily lease the home, with the option (legal right, actually) to purchase the home at a later date and for a specified price. In many cases, that lease money paid can be at least partially applied to the eventual payment on the home, which means in fact you are not losing quite as much money renting the property as people presume. The buyer is at no point obligated to buy, but the seller is bound by the terms and prices laid out in the contract.

This is a great way to secure your stake in a great deal that you might not be able to afford by conventional means. The extra time during which you are leasing (but do not own) the property can easily be used to make the necessary repairs on a rehab project, and since you didn’t have to devote your resources to purchasing the house up front, now that money can be used to add to the value of your (almost) new home. And don’t worry about the original owner recognizing the added value and jacking up the purchase price—he is bound by the contract terms.

After you’ve made your repairs, but before you’ve even purchased the house, you can use your extra lease time to line up a backend buyer to purchase your new home at its proper and newly adjusted retail value. Effectively speaking, that means you could buy the home and sell it in the same day, even the same hour, and not have paid a dime to own the house during the period of rehab (because that cost will either be applied to the purchase, or at the very least covered by your profit margin).

Rehabs are an especially good opportunity to use the lease option, since the extra few months provide the perfect opportunity to get all of your business done before you spend any money: pool your resources for purchase, make your rehab repairs, and line up a buyer for profit. When all that’s done, it’s just a matter of signing a few documents and cashing your check!

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