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Behold the Power of the Lease Option
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!
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