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You Can Buy A Home Now-Use A Lease Option
One of my favorite ways of buying or selling real estate is by using the lease with option to purchase or the lease option method. In some areas this is known as the rent to own method. Whatever you want to call it, this is the time of the real estate cycle when it's probably the best way or maybe the only way to buy or sell a house. The reason being is that property values have fallen enough to where more people can afford a house, but fewer people can qualify for a loan due to the current lending crisis. I imagine that loans will be easier to get in 2 or 3 years. With the housing values in a free fall mode many sellers are giving up trying to sell and are renting their property. Renting out a property is no bed of roses as renters are not known for being very kind to a property. This is where the lease option shines. The way a lease option gets started is when a person finds a house they would like to buy, but for whatever reason can't buy it right now. It could be because they don't have a large enough down payment, their credit is not good enough, they don't make enough money to make the payments or maybe they haven't been on the job long enough. All of these reasons can usually be cured by time. The buyers believe that they will be able to get a loan and complete the sales transaction within the time frame of the lease option. If the prospective buyer and the seller can agree that some time down the road the buyer will be able to qualify for a loan then they can go ahead and put together a lease agreement and an option agreement. The buyers normally give the seller a option fee amount and often pay a little more in rent. In return the seller will sometimes give the buyer credit for the extra rent plus some extra credit for paying on time. The option fee and credit will be used for the down payment or taken off the sales price. At this point the buyers have achieved several things: 1. They have basically bought the home they want. Because they have an option to buy it the owner can't sell it to anyone else.
2. They are able to buy a house now instead of waiting until they get everything in order.
3. They have time to get squared away and they basically own the house.
4. Normally they can fix it up the way they want.
5. They have a forced saving account if they are getting a rent credit.
6. If the house needs repairs they can do them instead of giving the money to the seller for an option fee. The seller has really made out also: 1. He's made a guaranteed sale or if the buyers don't exercise the option he keeps the fee.
2. He has made extra income with the above rent lease payment.
3. The option fee is tax free money he can use.
4. He normally sells above the market value.
5. The buyers are keeping the property in good condition as they are planning to buy it.
6. If he can't afford to fix the property up he can offer it to someone who can do the repairs rather than pay an option fee. As you can see this can be a real win-win situation for both parties as they each have solved their problem. Of course this is a simplified version as there are many variations of how the lease and option are handled but this should give you an idea of how to go about learning more about it.
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Contributor's Note
Don Levy is a retired mortgage broker and investor, who used lease option investing extensively. You can learn more about foreclosures and lease options at his website http://profitinforeclosures.com. If you have any questions his email is don@profitinforeclosures.com
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