Lease options are currently one of my favorite forms of Real Estate. I personally feel using the lease option to sell a property has major advantages over traditional sales methods, especially today as standard loans are much harder to get than in the past.
What is a Lease Option
Lease options or lease with an option to buy contracts are really a combination of two contracts which are rolled into one -They don't have to be put into one but there are benefits to using multiple contracts, mainly if your the seller -.
There is the Lease and the Option to buy. The lease is just what it sounds like. Its a rental agreement. This gives the person that wants the house the ability to stay their for a fixed price and a certain amount of time. As long as they make payments on time and follow the rules set forth in the contract they have a place to stay. Since most people know what a rental agreement is Ill leave it at that. The second part of the lease option is the option agreement.
The option agreement is either a section of the contract or a completely separate contract that references the rental agreement. The purpose of this agreement is to give the renter the right to buy the house with a specified type of financing. It will typically have a couple specific sections to it. An option consideration section. This is basically the down payment. It will state that the tenant is putting down a certain amount of money as option consideration. This will be used as the down payment if the tenant tries to excercise their right to buy the house. This is usually non refundable. A timeline for excercising the option is also a part of the contract. This timeframe is a set period of time usually from 6 months to 2 years that allows the buyer to buy the house at any time before the contract expiration.
Benefits of the Lease Option
As I said above, I like using the lease option as a method of selling houses. When used correctly it has many benefits for both the buying and selling party of the house. Buy using this form of selling you are creating a win win and also helping to protect yourself from some of the issues typical landlords have. You are also putting yourself in a better position than you would be buy selling on a straight land contract. Ill go into more detail on those points in other posts. The main thing at least for me is that you have the abililty to help people get into a home that normally wouldn't be able to. Please understand that you must be honest with the buyer and help them. Make sure they have the ability to complete the deal as you are trying to help them not just take their option deposit.
Some other reasons: It can be much easier to sell a house this way. Instead of having to wait several months and possibly drop your price multiple times to get someone to move in, you can often have the house sold in less than a month. Ive been in deals where I've sold the home in hours from the time I started marketing it, and it was as simple as one free craigslist post. Not only will it probably sell faster, it can sell for a much higher price. Plus most of the time you won't have real estate commisions to pay out - although it isn't a bad idea to network with realtors to sell your home- Ill talk about that later.
Lease Option Drawbacks
Their has to be drawbacks to selling this way right? Well there are, but I actually like the drawbacks. One of the drawbacks that I come up with off the top of my head deals with money. Selling on a lease with option means you won't get all the money right upfront. You will however I do like that you will get more money than just renting. You will also have to deal with tenants. At least sort of. I like it instead of renting because tenant buyers tend to be more self reliant than standard renters. You will also have less repairs to deal with then a renter because the typical lease option contract has the tenant cover most repairs. Allowing you to again keep more money for other deals.
In short lease options are a great way to sell real estate as an investor. They allow more money upfront and better security than just renting. They also give you the chance to sell your property faster and for more money. This is why I like selling with this method so much. As an investor you can also use options to buy real estate as well, but Ill save that for later.