I have been using lease with option to buy contracts for many years. A lot of agents don’t understand them. But when you have a lot of sellers who have a vacant homes, it should always be an option for them. As their agent, you should review it with them. The amount of option money is always a question for the seller. I always advise them that they have to look at the risk. It is their risk tolerance that they have to consider. Some sellers don’t like the idea of leasing their home because they want their equity and they want a closed deal. When the market is not as strong they should consider a lease option when the market is soft. You can help them decide on the amount of option money they need. For some sellers they need cash flow and so the idea of renting the home until the closing is ideal. So a smaller option payment will work. For a seller who has lots of concerns then a larger amount is required.
A lease with option is used quite a bit in commercial real estate. There is not a lot of training for residential real estate agents in the subject. There is a lot of training for new real estate investors on the subject so a professional REALTOR should be educated. These new real estate investors are being trained on buying property with little money down with a lease option. It works with an investor obtaining a lease with option to buy on a property. Then they turn around and lease option it to another buyer for a profit. It works if they can find the next buyer that pays the rent and closes on schedule. If the next buyer does not close then they have risked very little.
I just closed on a property using an option. Not a lease option just an option. It was residential. I needed the time to get approval from the county to approve the subdivsion I wanted to do. This was explained to the seller. With him willing to option the property I was able to pay him more for his property. In the event the seller had wanted all his money upfront and close quickly, I could have not paid him the price I did. It was a win win for him and me.
Lots of buyers need to sell a home before they can close on their next one. Some have good credit but can not qualify for the mortgage until their existing home sells. So a lease with an option works for them. They get to move into their new home, pay rent and then close when their previous home sells. They can also rent it out while the home is for sale of do a lease option as well. I purchased a waterfront home on Lake Norman this way. I leased it for 3 months while I waited for my previous home to close. Many people think that the lease options are only used on the lower priced properties. I have found that more are done on the more expensive properties.
The downside for sellers and buyers. There is a risk for a buyer to go into a lease with option to buy and the seller default on their mortgage sending the property into foreclosure. It would be good for the buyer to obtain information about the existing mortgage and ask an attorney to do a title search before going under contract. For a seller, if the buyer stops paying the lease, then they will have to evict the buyer under the landlord tenant laws of their state. If the market heats up and the property appreciates the buyer gets the benefit and not the seller, because the price is locked into. But as a seller, having the property rented to a buyer that closes within a year probably makes about the same return with the rent proceeds verses having it vacant until it sells.
Good luck with the lease options. Agents be aware of novice real estate investors who do not fully understand what they are doing. If you repsresent the seller make sure they understand all the risks and the benifits. If you represent the buyer make sure they understand their responsibilities and risk. I keep my lease options simple. An offer to purchase and contract with an option clause. Then I add a lease contract. I don’t get into the lease purchase deals where part of the money goes to the down payment. The option money is used as a down payment. The rent is just rent. The reason is lenders will only allow a small portion of the rent to be applied toward a down payment. They have a hard time with the lease purchase contracts. So I keep it simple.
Once again good luck with the lease options. It may help move some of your listings. I am using a new site www.Optionpurchase.com to post my lease option listings.
And remember, if you a have a referral for the Lake Norman area of North Carolina, please send them my way. I will take good care of them.
Rick Knight
Lake Norman, North Carolina
704-576-0385 cell phone
