A lease option is not new, though many people who are thinking of getting into real estate as a form of investment have either never heard of it or don't realize just how powerful a tool it actually is. The lease options is a way to get into real estate investment without a mortgage and to maximize your potential return on investment if indeed you do decide to purchase the home. Here's why:
A lease option is an agreement you reach with an owner to lease the home or property for a specified number of months. This can be six months or even up to two years, depending on what the owner prefers and what you can hash out with them. If you do your homework in advance, you will be able to see what the real estate market looks like today and what it will look like in the future. Based on these predictions, you should then decide if a lease option of six months or a year works for you. Perhaps even nine months, which isn't a common lease term but is definitely doable. The owners probably will agree to it, especially if they are hard up for money to pay the mortgage. A lot of people buy second homes thinking they can just sell the first and then get caught with two mortgages when they have trouble selling the first home. These are the perfect people for you to offer a lease option to. It allows you to have a window to see if the property appreciates enough to be worth buying without the commitment of a mortgage, and it allows the owners to have an instant cash infusion. It really is a win-win situation for all involved.
When you sign a lease option, you lease for the specified time then decide to buy or not. That's what so great about it - it's an option, you are under no obligation to actually buy the property. Let's say you lease for a year and the market in that area didn't pick up like you thought. You can leave the agreement once the lease term is up without worry. The owner is then free to get another offer of purchase or lease.
If the property does appreciate in value, you can then buy the property, and all the appreciation can become profit should you choose to sell the home at a future time. If you are getting into real estate investing, there is no sure thing, no way to know exactly how much profit you will get. With a lease option though, you greatly increase your chances of making a profit, with no risk or money down initially. For new real estate investors, this may be your best case scenario.
New To You RE, LLC - NOTE: Be VERY careful with lease options -
Generally, you're expected to put an "Option Fee" down, in addition to your 1st months payment.
As foreclosures are commonplace today -
We recommend minimizing, or eliminating, your option fee and ensure you perform your due diligence - BOTH before the lease option AND during the lease option term.
Should the property fall into foreclosure - you're most likely to lose all $$ spent for and during the term.
Lease purchase agreements are a kind of lease agreements that allow the lessee to make periodic lease payments towards the purchase of the property. The considerable changes that occur in this business led to new transaction polices and norms. Lease purchase agreement is one such change. It allows the lessee to decide whether he is interested in purchasing the property or not. Until then, the lessee can reimburse some amount of money that is agreed upon the lease payments.
During the entire period of lease, the owner cannot sell the property during the lease period. This scheme entices those people who are interested in buying properties for their use. Lease purchases are more preferable for people who do not qualify for loan or mortgages.
These agreement ceases to exist after certain lease duration. After the expiry of this period, the tenant has the option of buying the property. Also, after the expiry the right of the owner to sell the property gets restores. The owner has the option of collecting money from the lessee at regular intervals in lieu of betterment of house. The owner can also avail refinance loan against the property.
These agreements should carefully be written. These are written by experts or mortgage agents, who have complete knowledge on the subject. They will make you aware of all terms and conditions of the agreement. You can discuss the rules and regulations as well. Their advice is also of great value. The relationship that tenant and owner share is also narrated by them. They will also verify your eligibility to qualify for a lease purchase agreement. The financial worth of the property along with either detail on the appraisal of the property can be discussed.
Some people even opt for real estate lawyers to ensure that all the agreement is being written according to the various norms that are laid but the law and there is no biasness sin these agreements. No doubt, that different states have got different laws and it might become slightly confusing for you. A lawyer who is qualified in real estate arena will make you aware of entire procedure that one has to go through while entering a lease purchase agreement. Even the minutest of the details should be discussed properly in lease purchase agreement.
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