Lease Option

A Lease Option is an agreement between a seller, and a buyer, where the seller is giving the buyer the right to rent or lease a home, and the right to purchase that home at a predetermined price, within a specified time period.

You can utilize this technique when buying and selling.

A Lease Option must:

  • Be in writing
  • Consideration must be paid to the seller to make it legal (usually money, could be something else) When I’m buying $10, when selling, as much money as I can get the tenant / buyer to put down.

This is a unilateral contract (binding on only one party to the agreement) The seller (optionor) is bound to sell as agreed. The buyer (optionee) may or may not exercise the option to purchase. If he / she chooses to not exercise the option agreement and purchase, then the consideration or option fee is forfeited.

A Lease Option is simply combining a rental agreement with a purchase agreement.

There are many benefits for the:

  1. Home Owner / Seller2. Investor Owned / Seller3. Want to be Home Owner / Tenant-Buyer (Lease Option Buyer)4. Investor (Want to be Owner) Lease Option-Buyer

We are called Investor Lease Option-Buyer because; we will not actually be a tenant living in the house.

Benefits for the Home Owner / Seller:

  • Rapid, flexible sale of your house – They select the date that they want to move out. You can complete the transaction quick!
  • Certainty of Sale – They avoid the disappointment of “not selling” their house, waiting 45 days for the buyer to qualify, and then finding out the deal fell through for any number of reasons. Then the process starts all over again, and the pressure is really on them now.
  • They Get Quick Relief from Mortgage Payments – Compare that with a Realtor Listing that can go on forever!!
  • Eliminates Time Consuming House Showings – They won’t have to show their house anymore. On the average, you show their house less than 4 times. You find qualified, motivated tenant / buyers through your extensive advertising and screening procedures.
  • Get on with their life plans now, no more delays.

Benefits to the Investor Owner as Seller:

  • Can get full value or the future value for your selling price.
  • More up front money than just leasing, because of the option fee, which is tax-free until the option is exercised or forfeited.
  • Higher monthly rental payment can be structured, for example; Market rent $1,500, offer tenant-buyer to pay an extra $100 or $1,600 in this case and you’ll give them $150 credit toward their down payment. They are getting $50 free each month.
    It’ll count as additional option fee increasing their down payment and they will forfeit it should they fail to exercise the option.
  • Seller is still the owner during the option period and therefore receives the tax benefits.
  • Tenant / Buyer has incentive to take better care of the property since it is to be their home.
  • Tenant / Buyer is responsible for maintenance and repairs.
  • Tenant / Buyer has incentive to pay on time, late payments forfeit the option.

Benefits to the Tenant-Buyer (Lease Option Buyer):

Most sellers have no experience with lease options. I will help you with an offer and I / we would present it to the seller.
A Lease Option is an agreement between a seller, and a buyer, where the seller is giving the buyer the right to rent or lease a home and the right at the same time, to purchase that home at a predetermined price, within a specified time period, in exchange for an option fee.

This technique is an alternative to ownership today when a buyer cannot qualify for a mortgage today.

There are many Benefits to the Tenant-Buyer (Lease Option Buyer):

  • Can get a nice home in a nice area today, instead of a year or two down the road.
  • Can build up equity in their nice home while improving their credit rating?
  • Have more time to build up your base income?
  • Get a lower interest rate in 12-24 months with an improved credit score and thus a lower payment.
  • Have time to recover from a divorce, or bankruptcy, or any other life circumstance causing a temporary setback, which prevents them from qualifying for a mortgage today. So they can live in the kind of home and area they desire for their family now.
  • The amount of the option fee is negotiable. It can be all up front or some upfront and more paid on top of the monthly rent. However, to entice the seller to take a risk and accept the deal, the more money upfront the better. The option fee gets applied toward the purchase. The higher the option fee / down payment is, it makes it easier to qualify for a loan and get a lower interest rate eventually.
  • Part of enticing the seller to accept a lease option is allowing the real estate Broker to connect you with a loan officer to develop a game plan of what you need to do and how long it will take, to qualify for the loan to pay the seller off. You need to know this for your own benefit and the seller wants to know to be comfortable with the deal.
  • Sellers typically are not offering specific terms unless they are an experienced investor. They are looking for an offer.
    The Broker  will assist with the specific terms of the offer.
  • Lock in the price today. Whatever the price is, it still has to appraise when it is time to get your mortgage.
  • Have the option to walk away from the deal with only the loss of the option fee and no further obligation.
  • Have a home you can treat as their own today, make improvements etc.
Benefits to the Investor / Lease Option-Buyer (with the right to sub-lease):
  • Easy no hassle, little paperwork technique for controlling real estate.
  • No cash or current credit check needed.
  • Have seller assign over and receive tax benefits.
  • Only cost up front is for an Ad, which can be put on your credit card.
  • Make thousands of dollars generally within 2 months, from the rent, deposit and
    option fee.
  • Earn a monthly cash flow.
  • Earn another chunk of money when your lease option buyer qualifies for their mortgage.

The Lease Option technique creates a win / win opportunity for both the sellers and buyers.

September 26, 2017

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