During the 1970s and 1980s, lease option sales were all the rage in real estate transactions as a means of getting around alienation clauses in more standard purchase agreements. However, a series of court rulings that determined that lease purchases were in fact sales (as opposed to lease with option to buy agreements as argued by the idea’s proponents) led to the steady decline in their use. By the boom of the early to middle 2000s, virtually any sort of lease option – lease governed or otherwise – were virtually impossible to get since everyone wanted immediate payment for their property. However, the subprime mortgage crisis and the subsequent collapse of the American real estate market have changed this situation significantly.
Options, including lease options, are now making a come back as sellers try to move properties they got stuck with when the market collapsed. Further, since the actual value of many of these properties has declined sharply over the last couple of years, it seems likely that a number of sellers will continue to accept lease option agreements as a means of selling their properties to people lacking the resources for a traditional purchase (which is almost everyone since the banks have tightened up their lending standards).
The basic idea of an option is that the property is leased for a fixed period of time, but the lease includes an option to buy after a certain period of time has passed. The general terms of a basic lease with option to buy home such as the length of time involved, the amount of the rental payments, the amount of the option fee, the sale price and so on are all negotiable. The result is that there is a broad range of different options available, depending on the terms agreed to by the parties. The buyer generally has the right to exercise the option to buy or not to, and in either case will lose the money spent to buy the option in the first place. However, frequently at least a portion of the agreed monthly rental amounts will be counted against the purchase price of the property if the property is purchased once it is time to exercise the option.
Interestingly, in an investment lease option agreement, the option itself becomes a tangible investment item: it has its own initial price collected and it is sometimes transferrable, meaning the buyer can sell it or otherwise transfer it to someone else. This basically amounts to capital creation and since many other creative real estate investment strategies involve options, they are well worth knowing about in detail and understanding.
A standard lease option is essentially the same as an option described above; with the sole exception that the seller maintains more control over what the buyer can do with the option. That is, generally speaking, the buyer cannot reassign the lease option without the permission of the seller. This provides the seller with some protection from predatory real estate speculators and limits the value of the option, since any reassignment requires the permission of both the option holder (the property buyer) and the option seller (the property seller). On the positive side, lease options should cost less than basic options since are less liquid, and therefore this option makes sense for people sincerely planning to buy the property in question.
The advantage to the seller is obvious, while the advantage to the buyer is about the same as it would be for a investiment option, except it should cost the buyer a bit less due to the restraints placed on how the option can be dealt with. Lease option homes provides a great opportunity for people with less than perfect credit to buy a home and also offers the seller a number of advantages.
Would you like to learn more about how a lease purchase or rent to own house could help you? Need help determining if lease with option to buy homes are right for you? Please don’t hesitate to contact us! Do you find yourself saying “It is time I clean up my credit!”? If you have not already, you might want to consider enrolling in our Credit Repair College! Now, we are prejudice but we think it is the best credit repair you will find. We will show you what to do step by step with video training and teach you all the things that credit repair companies can’t do to improve your credit!
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