Lease Options

What is a lease option? A lease option allows the investor to take control of the seller’s property subject to the owner’s existing mortgage. With a lease option, the investor pays the seller a specified amount of money, which is non-refundable, and which gives him the exclusive right to buy the property at a later date. Sometimes the buyer will ask for price based on the market value when the option is exercised. During the option period, the investor will pay the seller a predetermined lease amount, a portion of which will be applied to the down payment on the property. The buyer is not legally obligated to purchase the property and may choose not to exercise the option when the least ends. The investor generally includes a clause in the lease option agreement that allows him to sub-lease the property, which gives the investor three additional profit centers, including the upfront deposit, the difference between the mortgage and the rent paid by the tenant, and the profit at closing. The least option offers benefits to all three parties involved:

It’s a win-win situation for the seller. The benefits to the seller are:

• The monthly payments will be paid by the investor/tenant through his lease.
• The investor/tenant will take care of maintenance and minor repairs.
• The owner retains complete ownership of his property.
• The owner makes a profit when the property is sold.
• By having the payments made on time by the lease/tenant, the buyer’s credit rating will improve.
• The rental income will help enable the seller to qualify for new financing.

The advantages for the investor are:

• Three different profit centers, including upfront deposit, monthly cash flow and back end profit.
• Profits are non-taxable until the property has been sold.
• You have no credit exposure.
• You have no maintenance responsibility.
• You don’t have any closing or holding cost.
• You have the option of choosing only the nicest houses, buyers and sellers.

The advantages for the buyer are:

• The tenant doesn’t have to qualify and can take immediate occupancy.
• The buyer can make installments toward the down payment.
• The buyer has time to restore his credit rating.
• The buyer has time to check out the neighborhood and the house before actually buying.