Lease Options
by Seth Joiner
As more and more properties go to foreclosure and more and more banks tighten up
their lending restrictions we are going to see a growing trend of people selling
their homes using lease options. Quite frankly lease option has been around for
a very long time but never have been given the publicity that perhaps they
should. The entire mortgage/real estate industry spend a lot of money trying to
convince you that their way is the only way of doing business.
First of all it opens up the amount of potential buyers that you can market to,
which being in a buyer’s market is a good thing. We want to give ourselves the
best chance possible to sell our properties for top dollar all the while
protecting our equity. In these circumstances we have two options...open up the
amount of potential buyers or pay the real estate agents more to sell our
property. Some of you might be thinking that paying your agent more shouldn't
matter but let me tell you it does. If they can make 7-8% instead of 5-6%
commissions you better believe they will be pushing to sell your property.
Secondly it preserves equity that you would probably be paying to a real estate
agent, closing costs and price reductions. Throw it in your local classified ads
instead of paying for a real estate agent to market the property for you saving
yourself the 5-8% commissions that are commonly charged. Besides that when
people buy your property they expect to be able to negotiate the purchase price
somewhat, but with a lease option this is a less likely scenario. I would always
recommend that you involve a lawyer in the process to make sure that the lease
and the option are both well documented for your local laws.
Thirdly you can ask for first and last month’s rent a rental deposit and options
consideration. The first and last month’s rent and the rent deposit are all a
part of the rental/lease contract and are potentially refundable. What you do
not want to be refundable is the options consideration and that is why you want
those contracts to be separate.
Lastly you can charge future value for the property and top dollar in rent. By
setting up your contracts, and I suggest that they be two separate contracts,
one being the lease and the other being the option you can get away from any
confusion about the people renting your property actually purchasing your
property using seller finance. So by making the distinction you can ask for
future value of the property and that can be a part of the option contract. On
the other hand you can charge more than market rent for the property because you
can have some of the rent go towards the down payment and closing costs when
they exercise the option.
Just remember that you don't want to give your renters the option of extending
their contract without paying another option consideration. You also want to
make sure that with any contract that there are some teeth in their so that if
they don't perform that there are some serious consequences. You may also want
to consider putting in the contract something to the effect that they are
completely responsible for all utilities and maintenance of the property and if
they alter the property in any way that they are solely responsible for the
costs.
Conclusion...Lease options are a great way to
sell your home in a buyer’s market (in any market) because you will be able to
sell your home more quickly, while conserving your equity and creating monthly
cash flow through rents. Not to mention the option consideration and any other
fees you deem necessary you get to keep regarless if they exercise the option or
not.