Ever wanted to sell your home via a lease option? Houses that are sold in this manner are a low risk, high gain scenario. I am going to give you an example of how great this residential sales strategy is, but before I do that, I want to cover just exactly what a residential lease option is. The basic premise of lease options are a “rent-to-own” strategy. A typical buyer would contract with the seller to rent for a certain period of time, in exchange for a set price to buy at the end of the lease period. That doesn’t sound very good for the seller, but in exchange for guaranteeing a certain selling price in the future, the seller collects an option fee. It is kind of like earnest money, except it is earnest money for a future purchase.
Other Articles in this series:
- Passive Income in Real Estate
- Property Rehabbing
- Renting Out Your House
- Seller Financing Agreement
- Residential Lease Purchase
Let’s look at an example to better define the residential lease option contract. Let’s say that seller Joe contracts with buyer Burt in a lease option. Burt agrees to pay Joe $5,000 for an option fee, in exchange for Joe agreeing to sell the house to Burt for $100,000 two years from now. Burt agrees to pay Joe $950 per month in rent until the end of the two years. So, at the end of the two years, Burt has the option to buy the house for $100,000. He can choose to exercise his option and buy the house, or he may work with Joe to lease it for a little while longer before buying. If Burt leaves the house (i.e. terminates the contract) he gives up the right to exercise his option, and Joe is allowed to keep the $5,000 option payment.
The Buyer’s Perspective
Depending on your negotiating skills, this can be a great system for buying a house. If you are able to negotiate a sales price of at or less than market value for the house, then you stand to gain money on the appreciation of the house in the future, without the risk of having to own it right away. You can play the market, maybe rent the house out in the meantime, and see what happens.
The Seller’s Perspective
From the owners side, residential lease options are a great way to earn income on the house, with the opportunity to “keep” the option money later. Many times a buyer is not able to make the payments during the lease phase of the contract, and therefore you as an owner get to keep the option payment. Furthermore, a buyer that comes up with a few thousand dollars before entering the premises is far more likely to take care of the house than a normal renter. So the risk of renting is lower in the lease option scenario, and the chance to keep the option money, and turn around and sell to someone else under the same lease option terms is very real. Imagine being able to acquire several thousand dollars when selling your house this way, and being able to sell it multiple times!
The downside to this strategy from the seller’s standpoint is that if the buyer does exercise the option to buy, then you lose the asset. So because I am trying to acquire and build up a long term income stream, this particular strategy is not as appealing to me. But as far as the potential to really capitalize on an asset, residential lease option contracts are spectacular.
The best remortgages should allow one room to back off. This is because often lender loans promise to be better than cash borrowed on credit cards, but seldom keep their words. Such faulty mortgage leads are usually generated in cases of investment property. Not all insurance leads are reliable, which is why mortgage is considered an option.