Being a Lease Option Investor Offers Options in Slow Market

Being a Lease Option Investor Offers Options in Slow Market

In a slow and difficult real estate market like the one we are going through now being a lease option investor may be a great way to get profitable deals done. The mark of a good real estate investor is being able to find creative and profitable solutions when a deal hits a roadblock. The use of lease options offers investors the chance to get into deals that may be closed to them through traditional means.

The concept behind a lease option is pretty simple, and mirrors that of stock options. You pay a set amount of money for the option to buy the property you are leasing at the end of the contract. A lease option investor pays for the option, the rents and fees associated with normal leasing as well as a little extra that goes towards the purchase price. This forced savings plan helps with the purchase as well as guarantees the lease option investor has some "skin in the game".

The important part of this deal is that you have the right but not the obligation to buy the property. You can walk away from the deal but forfeit any money you have put towards the purchase and the cost of the option. So why would anyone walk away from a deal they have already pumped money into? Well, the most common reason people get into a lease option in the first place is because they can't purchase the property by traditional means. Either they lack financing or a down payment.

The deal works for the property investor because he or she makes money from the option premium plus pockets any extra income that would have gone towards the purchase of the property if the deal does not go through. If the lease option investor ends up exercising the option to buy then the seller wins too. Usually, because the buyer cannot buy through traditional means the negotiated sales price is higher than market value.

This brings us to what you need to look out for in deals in like these. They can make money for both parties if the terms are all worked out. First, the term of the option to buy must be decided. Typically, option terms range from one to three years. Second, the purchase price or means to decide the purchase price must be decided on. Usually the price is decided up front and is slightly higher than market value, compensating the property owner for not selling to others during the lease option period. Some also choose to have the price set at market value at the expiration of the contract. But of course this can offer unique issues for the buyer and seller.

While it may pose unique circumstances, a lease option deal offers ways to make a deal happen when all other avenues are closed.

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