The Lease Option* - Give it a second look

If you are one of the many investors who sells real estate using lease options, then you no-doubt understand why a lease option can be an appealing avenue for those who need rental history or rent credits to help a less-than-perfect credit file. But, would you consider buying a property using a lease option? Maybe you should…

There are a number of reasons that some of the most successful real estate investors, including Donald Trump, use the lease option technique. It is beneficial in several respects, not just as a way to get past a credit problem.

Appreciation: One of the typical advantages of controlling real estate using an option is that the buyer retains the right to capture some, if not all, appreciation of the property during the term. Obviously, 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 receive a 24-month term in a real estate market that is increasing at 3% annually, you can expect to make $6,000 on a $100,000.

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 real estate, one has the opportunity to widen the gap between the market value and the loan amount. Depending on whether the monthly rent amount is in line with market rates, this is like 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 three 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. A veryy attractive aspect.

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 (or for) you!