Lease Option Investing – Good or Bad?
Lease Options Offer Opportunities In Slow Real Estate Markets
If you’re looking to unload properties when the market hits a snag, lease options are one of the industry’s best-kept secrets.
A lease option is an agreement between a buyer and seller that gives the buyer the option to buy a house at the end of the agreement. The seller must sell the property if the buyer decides to exercise the option to buy it. The seller also agrees that they will not sell the property to anyone else before the option expires.
The buyer is the lessee (the person who leases the home) and the homeowner. At the end of the lease, the lessee has the option to purchase the home. This method of buying homes has become more popular as the real estate market has slowed to a crawl.
Lease Options Offer Options For Real Estate Investors
Lease options offer opportunities in up and down markets.
As an investor, you stand to gain, especially if the lessee decides to purchase the property at a higher cost than what you could receive on the market for it at the end of the option.
What’s so unique about lease options is that most of them – 95 percent – aren’t exercised. This means plenty of opportunities for sellers. In exchange for a lease option, sellers often require a down payment and monthly rent payments are generally higher.
Typically, the option is within two or three years or enough time for the buyers to qualify for financing. Lease options are commonly used options for people who want to own a home, but don’t qualify.
If the seller doesn’t exercise the option to buy, they don’t get a refund on their downpayment. That income goes to the property owner. The downpayment is typically 3 to 5 percent of the set purchase price, although prices can vary.
Leasing Options Offer Benefits To Investors, Buyers
There are benefits for both buyers and sellers: The buyer gets a house at a pre-determined price. The seller gets more income from the buyer and a better quality tenant who is usually committed to taking good care of the property.
Many buyers resort to lease options when they can’t sell their homes using traditional real estate methods. Lease options allow the homeowners to keep income coming in from rent as well as tax advantages.
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