Home

Contact Us

Author Guidelines

Terms of Service

New Member?

Author Login

	E-mail this article
	Report this article
	Publish this article

What Is Lease Option And What Are The Benefits for Seller And HomeBuyer?

n any market, you can use lease option to reach a much broad buyer base, such as buyers usually could not buy their homes because of bad or poor credit score. You can also reach investors who use lease option as an investment tool. Most real investors use lease option to buy or sell properties in order to get more profits. Lease option is a very good tool to sell home with for sale by owner. It is my favorite tool to sell my properties.

What exactly is lease option?

In a simple term, a lease option (also called lease purchase or rent to own) is a real estate contract between a homebuyer and a seller (in this case, you) that gives the homebuyer tenancy in your property and the legal right to buy your property at pre-agreed price on or before a specific future date.

When you enter an agreement with a homebuyer, the homebuyer pays you a down payment (option money) to lock the sale price, monthly rent payments, and pay you the full amount of the pre-agreed purchase price at the end of the lease.

This can be accomplished by writing a right contract. A right contract usually includes two separated agreements, one is lease agreement and one sales and purchase agreement.
If the homebuyer exercises the right to buy your home, then the down payment will be credited towards the purchase price.

Under the term of lease option, the homebuyer is the optionee. The optionee is not obligated to buy your home. But, if the optionee chooses to not to exercise the right to buy, the optionee (homebuyer) has to give up his down payment (option money). If the homebuyer cannot buy your home at the end the lease for what ever reason, the homebuyer forfeits the right to the down payment.

If optionee chooses to exercise the right to buy your home, then you the home seller, as the optionor, is required to sell.

What are the benefits for you as an optionor?

1. The agreed-upon price of the property may be at the top of current market value range;
2. Tenant as a future buyer, has pride of ownership and therefore has an incentive to take good care of your property, which is less painful than managing a rental property.
3. The option money can be forfeited if the rent is not paid on time or the property is not purchased at the end of the lease.
4. Seller receives equity build up on the mortgage during the option period.
5. Option money is tax deferred
6. The ability to quickly regain passion and control your property in the event of optionee's default on the meeting the terms of the option agreement. The process is an eviction rather than foreclosure.

What are the benefits for the optionee (homebuyer)?

1. Buyer can receive control and possession of your property with a relatively poor credit score.
2. Very little initial closing close.
3. Buyer can build up credit score through the help of seller while renting.
4. Buyer can walk away from the contract if the value of the property on the specific future date doesn't justify its sale price.
5. Buyer can even generate profits if subleasing is allowed in the contract.

What is the risk for you as the seller?

The biggest risk is that buyer's default on the rent payments and walking away from the contract. Your remedy is to regain to possession of the property by an eviction. But you can prevent it from happen by
1) check the income and credit scores before entering into the agreement with the homebuyer;
2) Ask higher down payment. The higher down payment you get, the better you are protected.
3) Use good real estate attorney to set up the right contract.

When doing lease option, always use a good real estate attorney to help you set up your contract and close the deal in attorney's office.

If there is anything you don't understand about the lease option, always ask your real estate attorney for help.

My next blog will be on how to sell your home by lease option. Examples will be given for you to understand it easily



Links For Related Artilces:http://besthomesellingtips.com/2007/07/29/how-to-protect-you-from-buyer-default-when-selling-your-home-with-owner-financing/

http://besthomesellingtips.com/2007/07/29/top-10-mistakes-made-when-selling-your-home-with-owner-financing/

http://besthomesellingtips.com/2007/07/28/how-to-do-owner-financing-and-the-eleven-rules-you-must-not-break-to-protect-you-from-buyer-default/

http://besthomesellingtips.com/2007/07/16/how-to-sucessfully-sell-your-home-by-owner-financing-part-1/
About the Author
Author is a licensed real estate agent and active real estate investor. He received extensive training in real estate investment, business financing, marketing, and business management by nationwide famous real estate investors. John publishes his blog on http://besthomesellingtips.com regularly. He gives home selling tips to home sellers in order to help them sell their home fast. One of John's articles was nominated as the top 7 in a contest.