Recently, the real estate business is on its toes because of the sudden demand for lease option. It has been observed before that leasing homes at a reasonably fair price was an option popular in selective market areas , but recent developments in the real estate business have seen the rise of leasing even on places which have never been into this kind of market before. There are key elements in lease options which need to be studied in order to reap a win-win situation for all parties concerned.
One must understand that lease option carries the right to rent and an option contract to buy the rented property by the rentee at an agreed price and at a specified expiration date. Market approaches in this form of investing is to have your property leased out to an end-buyer with the option to buy it or lease option your property to the original seller and re-lease option it to the buyer.
As an investor, you get to profit a lot from this lease option strategy, the gains of which can be sourced out from the following: the rent differential which is paid to the original seller and end-buyer, non-refundable fee which is not necessarily a deposit, and the profit taken when the buyer purchases the property.
The Art of Mastering Leases
As an investor, you can still get profit from lease option even if the rentee does not choose to buy the property since the non-refundable consideration is already favored to the investor.
A Simple Plan: Homes
A key point in leasing is to have separate agreements or contract for leasing and option to buy. In this manner, if a situation arises that the investor has to evict the buyer, he can present a single contract document in court. With a single lease option document, the court will likely order the tenant’s option consideration to be given back and, at the same time, allow him to break the lease agreement. It is therefore wise as an investor to conduct a single lease option document to the original seller but transact for a dual contract to the end-buyer.
Other important points of consideration in the lease option contract are the following: increase of the strike price by 3% to 5% after every 12 months, the terms of the agreements should be yearly and renewable every 2 or 3 years, the buyer should be responsible for all repairs up to $2,000 and the original seller is obligated to repairs and over-all mechanical systems over $2,000, the property must have an insurance to which the co-beneficiaries are the original seller and the investor, the rent to original seller must be nominally marked to 6% of the strike price from the option contract, the rent to the end-buyer must be based on what will be the mortgage payment if the buyer gets financing worth 2 to 3 years, and, finally, the investor’s lease should include the period when rent starts.