Lease Options – Information and Tips for Sellers
A Lease Option is created when a potential buyer and seller enter into an agreement regarding a specific piece of real estate where the potential buyer will pay a small option payment and agree to rent the property for a specified period of time. This option payment is applies to the purchase price if the option is exercised. Additionally, most Lease Options require that the monthly rent is higher than current market rent so that a portion of each monthly rent payment then accrues toward the purchase.
A couple of common reasons for buyers to request a Lease Option would be those who have satisfactory income, but are don’t have the cash for a large down payment, or those individuals expecting some sort of windfall (inheritance or bonus).
Should the potential buyer decide not to exercise the Lease Option, the option money and any monthly rental money set aside to apply towards the purchase is forfeited to the seller.
Like any contract, the terms of a Lease Option are negotiable. The primary items to be negotiated are:
· the length of the lease,
· the amount of the option money
· the amount of rent (and what portion goes toward the downpayment, if any)
· the purchase price
Possible benefits to the potential seller include:
· Monthly rent higher than market rent
· Top market value for the property
· Renter more likely to treat the property as if they own it
It is wise to consult with your attorney regarding the Lease Option terms prior to entering into this complex agreement.
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