Lease Options and Why They Are So Profitable…
Understanding The Logistics to a Win-Win Deals Using Lease Options
In this ever-evolving real estate market it is currently hard for many households to obtain credit to buy real estate, and as many know there are many buyers waiting on the sidelines to make a move to purchase. This presents many opportunities for sellers to profit, whether it is structuring a seller financed deal which leaves the buyer the greater ability to obtain or abstain from conventional financing, or structuring lease options with the seller. With that said, let’s explore the benefits and profitability of structuring a lease option agreement between buyer and seller.
So, what exactly are lease options?
Lease options are simply agreements where the buyer, known formally as the “tenant –buyer”, agrees to purchase the property in a specified amount of time, for example, in three to five years, but will rent the property first. The caveat is the tenant buyer is treated as the owner and this means he or she is responsible for any and all expenses of the property, including but not limited to regular maintenance and repairs, utilities, trash, any damage made to the property while occupied, and even big ticket items. An added benefit of a lease option is the buyer, while occupying has a vested interest in the property, meaning they treat the house as if it were their own, because it eventually will be if the buyer chooses to exercise the option to purchase at the end of the specified term.
The buyer normally makes a down payment of three to five percent of the price. This means the seller will be able to profit from the deal from day one, and as explained in the next paragraph, can often cash flow throughout the leasing of the property.
The payments the buyer makes are usually higher than market rent and, depending on the agreement the seller constructs, you can use rent credits as a means to entice the buyer. Rent credits are usually structured where the tenant-buyer pays market rent, and anything above that figure goes towards the purchase price. For example, let’s say the market rent for the area is $2,100, and the buyer pays $2,500 a month. At the end of the year the buyer has put down $4,800 toward the principle purchase price. This also means, if structured properly the owner can cash flow for a few years before making the final sale.
Many buyers will also purchase properties “as-is”, with existing need for repairs because of the chance to own real estate. Also, because many buyers are ecstatic at the opportunity to own a house, they are more than willing to pay more than market value for a property, and this easily justified in an appreciating market such as the many parts of California are experiencing as of 2013 and on.
Lease options are often a great way to mitigate risk for landlords or sellers as well as buyers alike. This provides a service and product needed in the current real estate market conditions experienced in many parts of California for buyers, and also provides a profitable venture for the sellers as explained above.
If you or someone you know would be interested in profiting from lease options, please do not hesitate to contact our office as we can assist you in every step of the way. We can answer any questions you may have, prepare all the paperwork, and we also have tenant buyers lined up waiting to purchase your property.
For more information on lease options, or an offer for your property, contact us at any time here or shoot us an email at email@example.com.