Recently, the real estate business is on its toes because of the sudden demand for lease option. What used to be a slow market option for a number of years, leasing homes at a fairly attractive price is beginning to pick up even at areas where this option strategy was not getting any movement at all. If you are interested to invest through a lease option, you need to know what are important factors to watch out so you can gain better decision benefits from it.
One must understand that lease option carries the right to rent and an option contract to buy the rented property by the rentee at an agreed price and at a specified expiration date. Market approaches in this form of investing is to have your property leased out to an end-buyer with the option to buy it or lease option your property to the original seller and re-lease option it to the buyer.
These are the following gains that an investor can obtain in a lease option investment: the rent differential which is paid to the original seller and end-buyer, non-refundable fee which is not necessarily a deposit, and the profit taken when the buyer purchases the property.
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As an investor, you can still get profit from lease option even if the rentee does not choose to buy the property since the non-refundable consideration is already favored to the investor.
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A key point in leasing is to have separate agreements or contract for leasing and option to buy. It is of an advantage if two separate contracts be performed to protect the right of the investor to legally evict the buyer in case of a conflict where the investor can rightfully use a single document in court. Chances are that in a single lease option document, the court may favor the tenant by ordering the option consideration to be given back and making it possible for the tenant to break the lease agreement. With this in mind, it is therefore important that the investor provides the original seller a single document lease option but conduct a transaction requiring dual documents to the end-buyer.
Other important points of consideration in the lease option contract are the following: increase of the strike price by 3% to 5% after every 12 months, the terms of the agreements should be yearly and renewable every 2 or 3 years, the buyer should be responsible for all repairs up to $2,000 and the original seller is obligated to repairs and over-all mechanical systems over $2,000, the property must have an insurance to which the co-beneficiaries are the original seller and the investor, the rent to original seller must be nominally marked to 6% of the strike price from the option contract, the rent to the end-buyer must be based on what will be the mortgage payment if the buyer gets financing worth 2 to 3 years, and, finally, the investor's lease should include the period when rent starts.