Upstate Carolina Real Estate Investors Association

Lease Options: The Perfect Investing Tool for Greenville

UPSTATE CREIA: Real Estate Investing in Greenville, SC –

By Chad Carson, Upstate Creia Member

I’ve found that most investors in the Upstate of South Carolina are looking for 3 things:

1. Profit
2. Safety (risk of loss)
3. Ease of management

It’s Like a Sliding Scale:

   – The more risk you take and management hassles you have, the higher the profit must be.

   – The less money you risk and the easier it is to manage, the lower profit you’re willing to accept.

To prove my point, an investment with virtually no management and low risk of loss is a U.S. Treasury Bond or an FDIC insured checking account.  What’s the profit (yield) on these? In 2011 they’re hovering around 0%!

To make more profit investing in the Greenville, SC area you may choose instead to buy real estate and use leverage by borrowing money from a local bank.  This certainly increases your risk.

The entire amount of debt may need to be paid back in 5 years, payments will be high, and banks love the  small print and “gotchyas.”  That doesn’t make me feel warm and fuzzy.  What about you?

With bank loans you’re not only risking any down payment, but you must pay back the full amount of the debt no matter how well you do on the property. There needs to be a lot of profit and built in safety to compensate for this risk. Not to mention, in the Upstate, banks aren’t so anxious to lend like the used to be.

 Lease options are normally a good tool in any year, but in a very slow real estate market it’s even better! And Right here in our own back yard, this investing strategy is working well, even right now in this economy. In Greenville, Spartanburg, Anderson, in Clemson where I live and all over the Upstate. Lease Options are IN!

Let Me Show You an Example From a Deal I Did in Clemson, SC:

A seller owns a newer house in a good school district that an appraiser says is worth $200,000.  The seller bought the house when it was brand new 7 years ago for $170,000.  It’s in great condition.  He still owes $140,000 on his mortgage.

The house has been on the market for 6 months with 2 offers—neither of which could get financing.  It was originally listed at $215,000, but has now dropped to $199,900.  The house could rent for $1,200/month, but the seller doesn’t want to manage tenants. 

You, the Real Estate Investor, discovers that the seller would be willing to take $180,000 as a net sales price.  

There is nothing unusual about this deal.  If you really hunted you could find thousands of people like this in your area.

Many real estate  investors would try to pay cash, maybe for a price at or below the seller’s loan balance.  Although one in a 1,000 would accept this offer, most will not.   The seller will probably be insulted unless he’s very desperate.

What if Instead I Offered This:

       – I’ll lease the house with the right to sub-lease for $850/month.  Starts in 60 days.

       – I’ll handle ordinary maintenance less than $100/month

       – I get an option to purchase the house for $170,000

       – I’ll give the seller a $100 non-refundable option deposit and a $750 refundable security deposit.

       – The lease and option are for 5 years.

 Why Would a Seller Do This? 

1. Certainty.  He can move to his new house knowing he has a plan and a possible solution.
2. Save face.  He doesn’t have to “lose” money on the house.  He got the same price he paid for it. 
3. Income.  He’ll have rent every month from me. It may or may not cover all of his mortgage, taxes, and insurance, but it will certainly be more than a vacant house will produce.

Why Would I Do This? 

1. Profit:  I’ve captured $30,000 equity risking only $100 of my capital.  If the house goes up in value, I also benefit from appreciation.
2. Lower risk:  Unlike guaranteeing bank debt, I have the option to buy—not an obligation.  If the house goes down in value or won’t resell, I have the option to walk-away at the end of my term.   I do haveguaranteed $850 payments for 60 months, but I can rent the house for $1,200.  I’ve got some room to wiggle if I need to reduce rents to get it filled up. 
3. Lower hassle:  Renting houses in this price range are much lower hassle than renting lower end houses.  Tenants are typically more responsible and financially capable.  It’s also easier to sell this kind of house, because buyers and banks like newer houses in good neighborhoods.

So I’ve shown you the opportunity.  The question is how many of these deals do you want this year?  It’s up to you to start asking for them.

Here in the Upstate of South Carolina, we’ve got a good steady market. You don’t have the huge price swings like you’ll find in Florida or California, but plenty of real estate investors are making good money in this market. I know investors in Greenville, Spartanburg, Easley, Anderson, Clemson and even nearby in Georgia and Western NC that are using Lease Options and other strategies to buy, sell, hold and flip residential real estate.

Good luck to You!

Chad Carson
Real Estate Investor- Clemson, SC

This article is brought to you by the Upstate Carolina Real Estate Investors Association. (UCREIA)
Information about UCREIA’s Educational programs can be obtained off this website or by contacting the club’s Dir. of Education, Karla Kuhn

Author Chad Carson is a long time member of Upstate CREIA and a very active investor in the Clemson, SC area.
You can find additional informtion from Chad at his website www.CoachCarson.com