Lease option money can pay for your vacancies if you know how to structure your contracts! I give you the complete contracts (sample forms that are filled out and blank forms that you can print out and use) in my book, "$0 Down Real Estate Investing With Bad Credit And No Job!" You can find out more about the book. Just for those of you who aren't familiar with the process of Lease Option, here it is.
STEP#1. First you have to recognize that in order to make money in almost any market (i.e. stocks, commodities, real estate, etc.) you need to have the market in motion. In other words, the prices or value have to be changing substantially, either up or down, for you to make money. Did you know that many traders back in the NASDAQ bubble made millions by adopting a style that made perfect sense for the type of bubble market that was being experienced? Of course this was financially devastating to buy and hold investors who bought at the market top. So what is the difference? The answer is a difference in investing/trading style and risk management.
If you're thinking about getting into the type of real estate investment that involves fixer uppers, be careful. Think long and hard before setting yourself up for this kind of project because it is time consuming and sometimes costly. You have to make sure that your costs in this type of real estate investment will ultimately be minimal compared to your gains.