Posted: October 22nd, 2019
The benefits of buying or selling property using a lease option
Sometimes buying and selling a property can be a challenge. You may need a quick solution due a personal problem such as bankruptcy, divorce, losing your job, moving out, or bad credit. A lease option can save you a great deal in many of these situations. Here we explore the benefits of buying or selling property using this option.
First let’s understand what a lease option is:
A lease option is basically an agreement between the homeowner and the tenant where the tenant is given the option to buy the property at some point in future. This type of transaction may vary greatly since the terms of a lease purchase are subject to negotiations. In some cases, the set price may not be included. If it is, it may be an appraised value of the home at a period when the property is being purchased or any other agreed upon value.
The seller would require the tenant to give an advance payment which is non-refundable, locking in the entity to buy later, even in a situation where the owner may have a change of heart. The lease agreement in this case sets the amount for the down payment as well as the timeframe. The parties involved agree on the amount that will go towards the down payment and the rent.
This property disposal method has advantages to both the seller(homeowner) and buyer(tenant). Let’s explore a few of them.
Benefits to the buyer:
- It gives the tenant time to resolve any credit issues they may be having. Credit issues may prevent a mortgage borrower from accessing credit or even lower the amount available. Using the lease option to purchase a property will afford a period of time to improve the credit rating.
- You may need time to save for a down payment, especially when you fall in love with a property and don’t want to lose it. You basically enter into a lease agreement with the owner and with time, you’ll raise the amount needed for the down payment.
- The lease will be in place as long as the property owner agrees.
- When the buyer or the tenant has invested substantially in improvements and repairs, it makes sense to use this option. Upon agreement with the property owner, the value of work which has been undertaken can be used as part of purchase or even down payment.
Benefits to the seller:
- It gives a chance to attract serious and responsible tenants, especially those who are interested in long term occupation.
- When the tenant has the intention of owning a home, they will be more inclined to keep it in good condition for the whole of the lease period.
- The upfront payment provided by the tenant not only provides cash payment but also increases the return on investment. It’s important to note that it stays with the owner even in the event that the tenant is no longer interested in purchasing the property.
If you are interested in real solutions for real estate, Trader Real Estate Solutions will help you.