How does a Lease Option generate Cash Flow?

How does a Lease Option generate Cash Flow?

I never really understood that. Is it in the sense that you act as a middleman and find the Owner of the home a tenant? I let my friend borrow Be A Real Estate Millionaire and this question has been in my head all day! Could someone break it down for me?


"Whenever you find yourself on the side of the majority it is time to pause and reflect."
-Mark Twain

Sandwich Lease option

Playing the Middle Man is exactly what it is....

Step 1- Build a buyers List of Investor Buyers AND Tenant Buyers

Step 2- Find a Motivated Seller, possibly someone behind on their mrtg payments

Step 3- Get the property under contract (include the "and/assign clause," a "sub lease clause," and an exit strategy if it doesn't all pan out.

Step 4- Either Assign it over to one of your investor buyers for instant cash or Get one of your tenant buyers to move in.

Suppose I elect to move in one of my tenant buyers....For example

-Your purchase price is $150K, you'll be paying $900 per month, and the option down payment is $3000

-I would sub-lease to a tenant buyer with purchase price for $175K, $1200/month, and $5000 down...

Guess where that extra $25K on the purchase price, the extra $300/month in rent, and $2000 from the down payment goes???

This is a TRUE NO MONEY DOWN TECHNIQUE that you can get started on ASAP

Make it happen



"You gain strength, courage, and confidence by every experience in which you stop and look fear in the face. Do the things you think you cannot do. Tough times never last, but tough people do"

Greg Murphy is the man with this

DG said it best, Greg Murphy is the no money down KING with lease options. Just remember to get the "release of mortgage information" document from the seller.

Also, negotiate negotiate and above ALL NEGOTIATE. If they are truly a distressed property owner and behind on payments try saying this, "If I could catch you up on all of your late payments and continue paying the loan balance on your property until it sells, would this be something you'd be interested in doing?" If they say yes then you've hit a homerun!!!

Lets say they're behind 3 payments and each payment is $500. Find someone willing to pay 3,000 or 5,000 down. Give 1,500 to the bank to bring the seller current on their payments and you pocket the difference. ( so far so good right?) The piece about "making their payments until the property sells" comes in when the tenant buyer ( a person wanting to buy but needs to work on their credit in order to get approved for a conventional loan) pays their portion of the rent. This is where you do some number crunching. Lets say the monthly mortgage payment is $600. Charge the tenant buyer $850 ( as an example) and pay the $600 to the seller's bank and pocket the $250. The extra $250 is considered positive cash flow!! You keep collecting this positive cash flow until the tenant buyer qualifies for a loan so that they can exercise their option to buy! You will negotiate the purchase price up front so you'll know in advance how much you're going to profit from the deal.

An objection might be, "but what if the tenant buyer leaves the property?" You will need to do two things. First, include in the purchase agreement with the distressed property seller that if you don't follow through with the terms outlined in the contract the property will revert back to them and you simply part ways. This will be one of your contingency clauses in the contract. Secondly, you can always relist and collect another down payment ( which will be bonus money since you wont have to give it to anyone except to Mrs/Mr. Checking account - YOUR CHECKING ACCOUNT ) and rent it again to another tenant buyer who is almost qualified to buy the home or just flip it to an investor for quick cash. Either way, there's zero out of pocket expense to you AND there is NO risk on your behalf.

How do you know if someone is almost qualified for a loan? Again, this is simple. All you do is contact a local mortgage broker ( one that has 4 plus years on the job experience) and ask if they find creative ways to get people approved for loans. If they do then refer your potential buyers to them and let the mortgage do the work to see if the tenant buyer is a good candidate for your lease option.

One last thing, you mentioned that your friend borrowed BARM? If you haven't read it from front to back GET YOUR BOOK BACK and read and reread it. If you have lent it to him because you have read it already GREAT FOR YOU!!

I wish you nothing but the best!


Gary Rabatin
Certified Cash Flow Consultant
Founder & President of Gold Bar Funding Group L.L.C.
Private Real Estate Investor
"Building Wealth by the Numbers"

Thank you both for the great

Thank you both for the great advice! Just wanted to say both or your advice were great. Explained it to me in great detail for me to understand. God Bless!


"Whenever you find yourself on the side of the majority it is time to pause and reflect."
-Mark Twain

lease options

I find alot of tenant buyers at by checking the preforeclosure list where you can find out the amount owed, the default amount, and the auction date. If the amount owed is equal or less than FMV andthe default is not too high I contact the owners with a picture postcard and offer to pay up their default and take over their payments. I find I get better response the closer the auction date is. Keith Success be with you

That what I was looking for

That what I was looking for a true no money down technique that I can get start on to activate steps 1 & 2 i'll be back


Most new discoveries are suddenly-seen things that were always there.
Susanne K Langer


You can also do assignments of contract to get started.