In this issue, we’re going to talk about lease options (also called lease purchases). Lease options are a powerful (and profitable!) investing strategy that can be used to create win-win situations for both buyers and sellers.

But the best lease option deals are done when you act as the seller. As the seller, you can charge your tenant-buyer an option deposit that goes in your pocket whether they buy the property or not!

This is ALWAYS a good strategy for you to employ as a real estate investor. But it can be even easier and more profitable in our current economic climate.

What Is a Lease Option?
So what exactly is a lease option? Simply put, a lease option is a lease on a property with an option to buy it. The easiest way to understand a lease option is to compare it to a common way people purchase merchandise. You see it being used all the time by furniture and electronics retailers. They call it “rent-to-own.”

When you lease option a property, your buyer (or “optionee” or “tenant-buyer”) agrees to lease the property for a certain period of time and make specified monthly payments. In return, they can purchase the property from you for a specified price anytime during the option period (typically one or two years). In return for the privilege of having the option to purchase your property, the buyer pays you a non-refundable option deposit.

The Option Deposit
The deposit money they give to you will be credited toward the purchase price at the time the option is exercised. If they choose not to purchase the property, however, that option money is yours to keep! But this is just one advantage of the lease option strategy. Below are even more benefits that the lease option strategy can provide to you as the seller.

Monthly Rent
When you’re just renting a property, the amount you can rent it for is limited by the market you’re in. But with lease options, you may be able to get more money each month because you’re also providing buyers the option to purchase the property.

An added bonus is that tenant-buyers typically are more reliable than renters when it comes to paying rent on time. That’s because you include a clause in your standard tenant-buyer agreement about late payments. This clause would say something like, “If rent is paid late, tenants lose their option money and their right to buy the property.”

Repairs
When you own rental property, taking care of repairs is typically your responsibility as the landlord or owner (except for any damage caused by tenants). And repairs can be a headache.

In a lease-option situation, the tenant-buyers feel like it’s their home. If a minor repair is needed, it’s their house, so they need to take care of it. You can make this official in your agreement.

Pride of Ownership
Another reality of renting is that people don’t take care of things they don’t own. It’s human nature. When people rent a car, for example, they generally neglect it. When people rent an apartment or house, they often abuse the property and take it for granted. Because it’s not their property, they treat it differently.

The fact is, most renters just don’t have much pride of ownership. But tenant-buyers do. They want to own the property, and they feel like they already do. They often enhance the property, do extra repairs, landscape it, and generally take better care of the property than if they rented it.

Other Benefits for the Seller (Optionor)

• You make money up front with non-refundable option money.
• The option money you receive is tax-deferred until the option expires or is exercised.
• The rent your buyer pays is at the top of–or above–the fair market rental range.
• The agreed-upon price of the property will be at top market value.
• The tenant’s option–and his option deposit–is forfeited if rent is not paid on time.
• It’s easier to regain possession and control of the property. If the optionee defaults, you’ll evict, not foreclose.

A Great Strategy for Landlords
Lease options can even be a great technique for landlords. However, some landlords may view selling a property as a disadvantage. After all, many investors buy property to hold it forever, using rent money to pay off the mortgage. And there’s certainly nothing wrong with this.

But lease optioning is one of the best ways to profit from finding a good deal. Say you bought a house for $280,000, and its market value is $310,000. You lease option it for $320,000, giving the tenant-buyers the option to buy it in a year. At the end of the year they decide to buy it! They pay you $320,000 for a property that you bought for $280,000. Is that really a disadvantage? You’ve just made a lot of money! A true real estate investor simply goes out and finds another deal!

Do you want to consider a lease option for your home that is not selling for your ask price?  Click Here to evaluate your property