Which is the better investment for you?
When deciding on your Real Estate Investment strategy you have to take into account how passive or active you want to be. You also have to look at the risk associated with the expected return on your investment.
Rentals can take a lot more of your time if you are doing the property management yourself. Rentals also have the higher probability of having more damages and higher turnover.
When I buy rentals, I make sure that I get a minimum cash flow of about $100 per unit. The more units I have the more cash flow I have. I also make sure there is enough money to pay for estimated damages and property management. The thing about rentals is that they still have a higher risk of damage and vacancy. For example, let’s say you have a tenant that caused some damages of about $2,000. You can recoup some of this cost because of a damage deposit. If you have to pay the whole $2,000 that’s 20 months of lost profit. You may even have an extra month vacancy. Two years where you don’t make any money.
My Lease Option tenants are much easier to deal with and the chance of them causing damage is much less. I have twice as many Lease Options properties as rental properties and I would guess that I have about 5% of my problems with Lease Option tenants and 95% of my problems with rental tenants. I have no vacancies and the tenants buy in 3 years.