There are two things which are important to protect yourself when you are purchasing a house with a lease purchase agreement. This is true whether you want to live there, or get a tenant-buyer into the property.

Protection Method #1: You should always have a liquidated damages clause in your lease option agreement to give you an easy out of the contract. This clause is a legal clause that basically says that you can walk away from the agreement and the property owner get’s to keep the money you’ve given them, but they can’t sue you for any more money. It looks good to the property owner because they are thin king about keeping your down payment, so they are likely to agree to this clause. The bottom line if you want to play it safe is that you shouldn’t enter an agreement without a liquidated damages clause.

Protection Method #2: Use a corporation or LLC. If you haven’t done this before, this may sound hard but it’s not. You can form a corporation for about $500 online. A local CPA won’t charge you much because the company won’t have that many transactions. Sign the contract with the corporate name and seal. This way if you get into a situation where you can’t pay the lease money, it won’t adversely affect your personal credit.

There are always other ways out of contracts that a competent attorney would be able to help you with. It is smart for you to have a way out of the contract before going into it just in case things go wrong. When doing creative Real Estate transactions, it is a virtual necessity to have a lawyer to help you. Think of the lawyer fee as insurance. You hope you don’t need the extra clauses he puts into your contract, but you’re glad you have them when you need them.

It’s also true that you shouldn’t get into a deal where you can’t pay the lease, because this will still cost you your down payment money, and the potential profit you could have made from the deal had you been able to keep making payments.

Another option is to get a tenant-buyer into the property to pay the lease plus some monthly cash flow. This is a spread where you can buy a property with a lease purchase agreement (LPA) and then find a tenant-buyer to sell the property to with an LPA.

This creates a spread that if done properly can yield amazing results. If you know what you’re doing you can actually:

1. Collect more as a down payment then you pay for the property.

2. Collect positive monthly cash flow on the property
3. Sell the property at a higher price than what you paid for it

This gives you some profit now, some monthly profit and some profit when the tenant buys the property from you. This is the most ultra-cool, lowest-risk, sexiest real estate situation I know of.

Mark Chambers is a Real Estate Investing expert. Mark teaches people how to purchase Real Estate creatively to build wealth quickly. For an in depth analysis of the current Real Estate market, including which strategies work best in today’s volatile market, please visit Mark’s website at http://www.LeaseOptionFortune.com