Using a Lease Option to Your Advantage as a Real Estate Investor

Using a Lease Option to Your Advantage as a Real Estate Investor

by Judson Voss

As the sub-prime lending mess is unfolding currently here in the United States, people are loosing their homes to foreclosure at record levels. Where are all these people going to live? The quick answer is that they will most likely become renters. However, a couple years down the road when the market has adjusted and interest rates drop again, many will look to purchase another home to live in. And, one of the best ways they can do it is through a lease option purchase.

A lease option purchase is one where you as the property owner find a high-quality, long-term tenant who is interested in the right to purchase your home down the road in a couple years. Maybe today the tenant is strapped for cash, has bad credit, etc… but in just a couple years they will be able to qualify for traditional financing. In this case when they want to buy, lease option is a good option for them to consider.

When you set up your lease option purchase contract it is essential that you believe that the tenant will be able to obtain the necessary financing in the time specified in the contract. Morally, you should not lease option to someone who you do not think will ever actually purchase the home. While you may make some money on the deal, you will only be hurting their lives and not helping them out at all.

In a lease option purchase, you can stipulate that the tenant is responsible for any repairs and changes to the property during the time they live there, in exchange for a higher credit each month towards their down payment on your property. This removes you from being the “landlord” and places you in a position where each month you simply have to cash their check as a mortgage holder would. And, at the same time, you are giving someone a chance to own a home in the near future which they simply cannot purchase at the present time.

If you are in a lease option deal and the tenant is unable to obtain financing at the end of the contract and moves out, you retain full ownership of your property and owe them nothing. This places you with a choice of doing another lease option, putting the property for sale, or simply renting it out. What you ultimately choose to do should be up to you and what the market shows you to do at the time.