Understanding Real Estate Lease Options
Norman Fleming
If you are an investor that sells properties using lease
options you no-doubt understand why it can be an appealing
avenue for those that need rental history and/or rent credits
to help a challenging credit file. But, would YOU consider
buying a property using a lease option? You better!
There is a reason that some of the most successful real estate
investors, including Donald Trump, use the lease option
technique (ok, there are actually several reasons!).
Appreciation: One of the typical advantages of controlling a
property using an option is that the buyer retains the right to
capture some, if not all, appreciation during the term. The
longer the term, the greater the appreciation can be. In the
single-family arena, where terms are usually 12-24 months, even
moderate amounts of property appreciation can add up. For the
buyer, especially, every percentage point of appreciation
counts. And, if you're nice enough to offer (or get) a 24-month
term in a market increasing at 3% annually, $6,000 on a $100,000
property is significant.
Principle Pay Down: If an option is accompanied by a lease the
possibilities are greater for increased equity build up. By
applying a portion of the monthly lease payment amount to the
purchase price of the property one has the opportunity to widen
the gap between the market value and the loan amount. Depending
on whether the monthly rent amount is inline with market
rates...this is free money! A 30-year amortized, $100,000 loan
at 7% begins at approximately $82 per month of principle
payments. A $100 per month rent credit beats that, dollar for
dollar, every month for almost 3 years!
No New Loan: Possibly the most noteworthy advantage of using a
lease option in the residential market is that when the
Optionee begins the purchase process no "new loan" is required.
The prerequisite for this may be working with the right and
informed mortgage broker but is usually easily accomplished
through a refinance. This can mean no additional out-of-pocket
monies for closing.
No Down Payment: I know what you're thinking, "I would never
offer such a thing!" You don't have to. As a real estate
investor rich in tools to find motivated sellers, you could get
your next home using this lease option technique with no money
down. You don't have to tell the seller that an option fee may
be customary!
When you add it all up the numbers are hard to resist, so don't
try! If you're in the market for a new (or new to you) home, use
your own strategy against you!
This article provided courtesy of
http://www.1031-exchange-guide.com
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