subject: Lease Option Investing - Adding Another Weapon to Your Real Estate Arsenal [print this page] Lease Option Investing - Adding Another Weapon to Your Real Estate Arsenal
Lease option investing has picked up in these days of tighter lending standards and a slower real estate market. This non-traditional contract clears many of the standard roadblocks that present themselves to buyers with less than perfect credit, no financing or lack of down payment.
While lease option investing may be a non-traditional way to acquire property and seem a bit confusing, but I promise it's not that all that bad. Basically, a lease option grants the buyer the right to buy the property they have been leasing at a certain point in the future. Terms for a standard lease option usually range from one to three years. The option itself costs money plus the lease puts up extra money every month that goes towards the purchase price plus normal rents.
In lease option investing the renter/buyer makes out because they are given the right to buy the property in the future and also put money towards the purchase throughout the life of the option. Ideally, if they don't have the money now or can't get financing they hope to be able to by the end of the option period. Also, by paying a little extra every month the buyer is basically forced into a savings plan.
The flip side of this arrangement is that if the buyer/renter decides to not exercise the option they are out of the money they have put into it. The option cost plus the money put towards the purchase price are lost if the buyer decides to not go through with the deal. Why would anyone let this deal expire and not buy the property? Well probably for the same reasons they couldn't make it work traditionally. They might not be able to come up with the money or the deal may no longer be a good one.
The lease option period usually lasts from one to three years and during that time period a lot of things can happen. Most lease option contracts set a sales price at the beginning, which usually is above market value at the time. Down the road though, if the market changes the purchase price may be more than market value, and there is no point sending good money after bad.
Lease option investing is not the traditional way to get into a property but in this investing environment it will allow potential buyers and sellers to find common ground on which they can get a deal done.
