Let's play make-believe, shall we?  It's a fairy tale with a happy ending, no wicked step-mothers, and no poisoned apples.  Picture if you will...

A confident and eager real estate mogul-in-training- one that looks a lot like you!- with a $5000 check burning a hole in a briefcase.  Also in that briefcase is a signed contract that will generate $250 monthly Positive Cash Flow.  It gets even better!  Now imagine that the contract is on a property you don't even own, and you don't have any back-breaking work or maintenance to worry about in the near-future.  After hearing the good news, your partner is ecstatic and can't wait to share in celebrating this triumph.  You're on your way to vast riches, and it all started with this first Lease Purchase deal, and you plan on doing it again soon

How did you get to this point in your real estate career?  Through hard work, studying the market, and setting your crosshairs on a beautiful property with everything that a tenant would want.  You keenly employed the art of negotiation you've been honing in so many other deals, and you came out on top.  Your deal is good for two years, during which you have the rights to the property and the revenue generated by tenants, and all it will cost you is one month's rent.  The Sandwich Lease, the one that binds the occupant, is placing a $5000 non-refundable Option-to-Buy in your hand.  This type of lease can work really well with a well-written contract, giving you control of the property.  You can also include a Specialized Assignment clause that allows you to rent it out, and you keep the money!  Once you consider the $5000 Option-To-Buy check and the rental lease, you're practically making money hand over fist.  All while not having to encounter any deed transfers or costs associated with titles.  If this sounds too good to be true, you may be on to something...

 Unless you take steps to protect your whopper of a deal, this bounty can become a famine real quick.  Here are some tips to keep the money flowing to you, not away from you:

First, you start with the check upfront, the Option-To-Buy check.  Make sure it is a sufficient amount to cover any unforeseen risk, usually equivalent to three to five percent of the purchase price, sometimes more.  This sort of "equity" decreases the chance of the tenant/buyer causing any problems for you in the future that can become a financial liability.  Think of it as "skin money." 

Next, avoid using generic contracts found online or at office supply stores.  When this much money is at stake, you want to cover all your bases, and these generic contracts lack the "devil in the details."  A reputable real estate investor or local attorney can supply you with a contract to make sure you're not at risk.  I know of one investor that has a portfolio of seven- yes, seven!- different contracts that he uses depending on the type of property and the specific terms of the deal. 

You would also be wise to record a Memorandum of Option with your local registrar.  It is simple and inexpensive, and offers additional protection against any unforeseen problems.  One such example of a problem can arise when the tenant/buyer tries to sell the property out form under you without prior notification.  The Memorandum would block any such transaction and would force disclosure to you... and your attorney.

While you can't predict the future, you can check the past of your tenant/buyer.  Running a credit check can tell you a lot about this person and can uncover any skeletons in the closet. 

While on the subject of running checks, you might also make a Preliminary Title check.  This will give you the scoop on the current owner and the history of the property.  There are resources to accomplish this on the Internet, or you can contact your local title company, local title researcher, or other titling service.  Due diligence is key.

A very effective technique is to open escrow.  By doing so, you can leave instructions from the onset of the transaction.  A paper trail is then started that can be tracked to know exactly what each party was intending throughout the process.  If a legal contest comes up, this record will be to your benefit. 

As an added tip, make sure this practice is done under the supervision of your title company and/or attorney.  You need someone that knows what is in your best interest in your corner.

As a time-saver, the deed can be placed in escrow in the event either you or the tenant/buyer decides to close.  This just gives you a head start.

In this age of technology and instant transactions, ACH payments and electronic transactions are becoming the standard.  Employ this ability with your escrow company, title company or accounting firm.  This will make it easier to pay and follow receipts, payments, and taxes.

As for insurance on the transaction, you should be listed as the "loss payee."  The tenant/buyer is the one purchasing this insurance, in addition to the renter's insurance that you should require them to carry. 

To verify the condition of the property, do a walk-in with the tenant/buyer.  You can create a video log by videotaping the walk-through as visual proof of the condition.  You can also find inspection forms for signature.

Last but not least, keep your dealings on the up-and-up.  Be honest, upfront, and expect the same from your business partners.  By fostering an open and honest relationship, this can almost guarantee a win/win situation for everyone involved. 

Prevention is the best medicine, even in real estate investment.  The best way to prevent any problems is to be knowledgeable about the agreement you are entering into.  This preparation is only good if you employ it in the negotiation round of the transaction.  Do not rest on your laurels and think that you are fully capable of negotiating the terms as you want them.  There are many hurdles to cross as you hash out the terms.  Surround yourself with professionals that you trust. 

Preparation can be your telescope into the future.