Boomerang Real Estate OR
Making Money when the Tenants move OUT and the home comes Back
By: Claude W. Diamond J.D.

Yippee !!! My tenants just called and they gave me thirty days notice of their intent to vacate.
I love it when my Tenants want to move out !

I know that sounds outrageous, but with Lease Purchasing you actually look forward to the tenant or tenant/buyer giving you the word that they are going to leave.

Guess Why?

I can make more money when a tenant moves out because I get the property back and get to lease it with an option all over again. I call this boomerang real estate. This strategy is defined as making money on a Lease Purchase property that keeps coming back until someone buys it.

Famous New York Yankee Yogi Berra said it best, "It’s Deja Vu all over again."

I profit by always receiving a substantial profit upfront in every transaction which we call option consideration. Option consideration money is the upfront non refunable cash commitment made by the Tenant/Buyer inorder to move into a property with all the terms of a future potential purchase locked in.

Let me illustrate the above with an example. I purchased a property from a developer at a wholesale price of $160,000.00. The actual market value was $190,000.00 which gave a $30K spread. My payments to the bank are around $1000.00 per month with a variable rate 40 year mortgage*.

*Strategy Note: You want to use the type of financing that gives you the lowest monthly payment. Why not?
The property is likely to be exercised (purchased ) in the short term. In this case, I had a loan that was essentially a variable rate negative amortization. This is not normally the type of loan you want for your own home since the principle can actually increase. For an investment property, however, that will sooner or later be purchased, you can have an excellent cash flow since your payments are so much lower. I would not use this type of loan on a keeper property.

I ran the following ad in the paper under three different classified sections ‘Homes for Sale’, ‘Homes for Rent’ and the unique San Diego ‘Rent to Own’ section.

Rent to Own New Home
$1350/mo with 50% Rent Credit
3bedroom/2 1/2 bath, pool, garage
(619) 421-4121

Keep the ad simple, to the point, always give a generous rent credit and the phone will ring! Here is an anthology of this property over 4 years.

Tenant/Buyer # 1 Gave me $3500.00 as option money and $1350.00 per month for a one year contract. They moved out at the end of one year. Why? (That’s another CRE article for the future.)

Profit: $3500.00 (Opt $) + $4200.00 (350 X 12 Months Rent) = $7700.00.

Tenant/Buyer # 2 Gave me $3500.00 option money and an additional $2500.00 for a second year renewal. They moved out the second half of the second year. Same rent as the above.

Profit: $3500.00 + $2500.00 (Opt $) + $6300.00 ($350 X 18 Months Rent) = $12,300.00.

Tenant/Buyer # 3 Gave me $5000.00 as option consideration and $1500.00 per month rent for the usual one year contract. The lease expired after one year and they just rented at the same rent for another year with no option to purchase at all.

Profit: $5000.00 (Opt $) + $350.00 X 24 Months Rent = $13,400.00.

Total Gross Profit for this one home is $33,400.00 !!!! (And I still own it!)

The Claude Success Rule: Purchase or Lease Purchase (long term) with an option; a good home in a good neighborhood at the right wholesale price. Market that property as a one year rent to own with very generous rent credit. Charge as a minimum at least three months rent (or more) as non refundable Option consideration which should be applied 100% to the purchase price.

The Bottom Line: If your Tenant/Buyer exercises the option; you win. If they move out you win because you can do it all over again with another Tenant/Buyer for more option money. You have a property that lets you profit upfront, every month and at the end. If it sells, you avoid paying a real estate commission, closing costs or even a management company. Lease Purchase properties are usually self managed. You also retain all the tax benefits on the home (if it’s yours) during the rental.

Boomerang real estate is one of the best ways to build long term wealth and continuous, dependable cash flow as a creative investor. You might even make enough to visit Australia and see some real boomerangs at work. G’day Mate !