Lease Option Your Way To Financial Freedom

by : Richard Reichmann

Lease options just happen to be another tool in the real estate investor's tool box that can lead you to financial freedom in a reasonably short period of time.

Regardless of the market conditions this is by far the most flexible of all the investor's tools.The most important thing to remember about doing lease options is that only twenty to twenty five percent of the people will ever exercise their option.

What this means to the investor is that you will probably get the property back a number of times and be able to lease option it again.

Each time you enter into a lease option agreement you get a non-refundable option consideration from your tenant buyer.

Many investors are getting anywhere from 10 to 30 percent for an option consideration. Just be sure to have your attorney look over all of your contracts to make sure you comply with state laws.

For an example: Texas is one state that doesn't allow lease options. In Texas you must use an all inclusive deed of trust. Just make sure you comply with all of you state and local laws in each and every transaction you do.

A lease option is actually a acombination real estate rental, sales and finance technique. It is a property lease for a fixed time period, such as 12 or 24 months, with an option for the tenant to buy the property at an agreed option price during the lease term.

Buyers like lease-options because little up-front cash is required. Sellers also like lease-options because they provide necessary cash flow to pay the mortgage and property taxes from a tenant who has a vested interest in treating the property well and who is likely to buy it.

Now lets discuss the advantages to both the buyers and the sellers in a lease option transaction as there definitely namy benefits for both.

Unless your property is located where there is very strong demand from buyers, lease-options can be especially advantageous for home sellers.

No matter how slow the local real estate market might be, there is almost always a strong demand from lease-option buyers. Many prospective home buyers can usually afford the monthly payments but they have often have insufficient cash for a down payment.

The lease option solves this problem by giving the tenant-buyer a rent credit toward the down payment. It's like a forced savings account. In addition, the tenant-buyer usually pays up-front nonrefundable consideration for the option, typically several thousand dollars.

Because of strong buyer demand for lease-options, when done correctly, home sellers can demand and get top dollar for their properties.

Usually, the option price is set at the market value when signing the lease-option. If the home's market value goes up during the lease-option term, the buyer benefits. Should the property drop in value, then the tenant usually doesn't complete the purchase.

During the lease-option, the tenant-buyer usually take good care of the property as if they own it. Another seller advantage is earning above-market rent. Landlords can charge tenants 10 to 20 percent above market rent.

During the lease-option period, the seller retains all the property income tax deductions. If a tenant complains about not receiving any tax benefits, a reminder about the rent credit toward the down payment usually ends the discussion.

Lease-option benefits are not one-sided. Advantages for buyers include: The amount of up-front cash required to acquire a home or other property on a lease-option is usually small, often just a few thousand dollars for the first month's rent plus non-refundable option consideration. This option money is in lieu of a security deposit.

The unique characteristic of a lease- on option is the rent credit toward the buyer's down payment. Typically, the rent credit is 10 to 100 percent of the monthly rent, depending how motivated the seller is to sell. The higher the rent credit percentage, the greater the probability the tenant will buy.

Another special lease-option benefit for the tenant is the ability to try out the property before buying. If it is undesirable, the tenant hasn't tied up a large amount of cash in a home that might be difficult to resell.

The ability to control a property and profit from its market value appreciation with very little cash is called leverage. Lease-option buyers have this unique advantage.

Although most residence lease-options are for short terms, such as one or two years, smart investors seek lease-options with the longest possible term. They reason the property is likely to appreciate in market value over the long term so everyone wins, and that's the way all transactions should end.