Whether you are a broker, an individual selling your own home, or an investor, there may be no better rental/sales approach than the lease option. “Lease option to purchase,” also called as “rent-to-own,” or more commonly “lease option,” is an easy and inexpensive way to acquire home ownership and have the full control of property to the buyer while the seller gets an opportunity for positive cash flow and selling their home for market value, or more.
The lease option is an agreement in which the potential buyer pays an “option consideration” at the beginning of the agreement for the option, but not the obligation, to purchase at a later date, usually twelve months later. The option consideration is usually much smaller than a traditional down payment. Generally, most sellers credit the option consideration toward the purchase price or down payment of the home. Most also credit a portion of the monthly payment if the buyer pays the amount as agreed. If there is no set dollar amount for either the option or the monthly credit, it can be negotiated between the buyer and the seller.
Wondering why would anyone opt for lease option? People enter into lease option for various reasons such as a credit problem that negates the possibility of securing traditional financing, lack of money on hand to pay for a down payment and closing costs on a new home, or a simple investment strategy. Other people use this form of “creative financing” because it allows them to move into a more expensive home or neighborhood than they could qualify for using traditional means.
The benefits of the lease option approach to home ownership, although not all inclusive, may include:
• Low move in costs
• Immediate possession of a home
• Allows buyer to build a down payment (during the time the buyer is leasing)
• Part of the monthly payment usually goes towards purchase price
• Allows buyer to repair credit, if necessary (gives time to the buyer during the lease period to fix any credit problems)
• Permits buyer to “move up” in neighborhood
• Appreciation of home while controlling its use
• Allows time for buyer to “try before they buy”
There are several approaches to the lease option sales strategy. Fundamentally, however, they are similar in result. They fill a home vacancy and owners get a good return on their investment.
The advantages of this approach are many. They include:
• Virtually eliminate vacancies in almost any market,
• Owners enjoy greater positive cash flow and are paid on time,
• Receive down payment money in the form of an option consideration,
• If selling on your own, eliminate real estate broker sales commissions,
• Sell at market price, or more,
• Enjoy the tax benefits and depreciation of owning a rental property, all while helping others realize the dream of home ownership.
If done correctly the result can be better than a month-to-month tenant. That’s because you won’t have “tenants,” you will have “buyers” who tend to pay on time, as well as take better care of the property.
For investors, and those who have more than one or two properties to sell, the most profitable form of education you can receive may be from a local mentor who is already successful in townhome lease option activity. Many cities and states have local and regional real estate investing clubs; these are good for finding mentors.