$1,650 Profit on My First Lease Option

by Larry Hoffman
Cincinnati, Ohio

I wanted to let you know about my first deal. It started when I spotted an ad in the Sunday paper with the words "Land Contract." I called the owner and asked if he would do a lease option rather than the land contract, and he said "Yes." So I made an appointment to look at the property.

I got there a little early to look at the house from the outside. It was a really nice house. The owner showed up, and we went in. When I got in the house, I was really impressed with the layout and the size of the rooms. As we were talking about the terms of the lease option, it turned out that he was an investor as well.

As we were talking, another prospective tenant/buyer walked in. I told the seller I would call him later that night, and when I got home there was a message for me. It was the seller saying he sold the house to the tenant/buyer who was walking in when I was walking out. I thought that was the end of the deal.

The next day, however, I got a call from the seller. He said the tenant/buyers had backed out of the deal. He now became a "motivated seller." He said he just wanted to get this property sold. He said he would assign the contract to me for $6,000. I told him that my money was tied up in other deals, which wasn't the case--I had no money.

Instead of assigning the contract to me, I suggested doing a Cooperative Assignment. He asked me how a Cooperative Assignment works. I showed him instead of him just making $6,000, his profit would be $13,200.

Since we were heading into the weekend, I decided to run a test ad to see how marketable the house would be. I put the ad in the Sunday paper under the section "Houses Lease-Option To Buy." The ad read:

That Sunday I received around ten phone calls. I arranged four showings all to take place the same day later that week. The first person I showed it to wanted it. I mean really wanted it. She put down $100 earnest money for me to take it off the market, which I did. After she had a whole house inspection she said she was ready to sign the contract.

Later that week we (the seller, tenant/buyer, and myself) met a local restaurant to hammer out the details. This deal took a matter of seven days from the time I had the original agreement with the sSeller to the final contract with the tenant/buyer. The numbers are as follows:

Original sale price: $129,900
New sale price (+5%): $136,400
Rent credit: $1,100/month (100%) $13,200 (after a year)
Option consideration: $3,300
Sellers purchase price: $110,000
Sellers profit: $9,900
Sellers positive cash flow: $200/month ($2,400 after a year)
Sellers total profit: $13,950
My profit: $1,650

I guess I could have received a percentage of the positive cash flow ($200/month ). I wanted some initial experience first, and I felt a little awkward asking for a part of it. Next time I will not feel awkward.

I added up all my total time: the trips over to the house and speaking with buyers on the phone. It added up to be a grand total of eleven hours; that is a day and two hours worth of work. That's $150 per hour for my time, which doesn't even come close to what I make at my regular 8 to 5 job!

It is possible to control another person's property with almost no money down. I did it with only $30 for the ad I place in the Sunday paper.