As an REI professional trying to sell a property in a tough economy, you may discover that a lease option is a good bet for both you and your tenant. This will ensure that your property is filled and the monthly rent is being paid, while giving the tenant the option of buying their home at the end of the lease term.
A lease option is a good deal for those with less than perfect credit because it allows a prospective home buyer to repair her credit almost effortlessly, at least compared to other choices she may have. And as a seller, it removes that dreaded property vacancy that you must face when you’re trying to sell a property outright.
But lease options are not only for those with poor credit. Many would-be buyers use a lease option to help them move more slowly into the role of homeowner with all its inherent responsibilities and costs. In essence, a lease option allows a buyer to “test drive” owning their own home before they’re irreversibly committed.
Lease options basically allow a seller or landlord to allow a tenant to buy a piece of property after a specific amount of time (typically from one to three years) by paying a non-refundable option fee. Some lease purchase contracts also allow a percentage of the rental fee every month to go toward equity in the property, which then is used as part of the down payment upon purchase, though this isn’t always the case.
For a tenant or buyer, the lease option ensures that no one else can purchase the property during the contract term thereby giving the tenant the first choice to buy. If a tenant prefers, she can usually buy the home any time before the contract is up rather than waiting until the end of the lease. A lease option also locks in a sale price so if the home goes up in value, the tenant could end up paying less than the home may be worth at the end of the contract.
As with any real estate investment opportunities, be sure you thoroughly research a lease option before you decide and be sure you have a professionally drafted contract that protects your assets. But if you’re looking for a way to potentially sell a property while still keeping a monthly rental coming in, a lease option may be well worth your consideration as an investment.
