With the current real estate market in a state of flux, many buyers and sellers are looking for new alternatives in lieu of the conventional sale. One such alternative, the lease option, is a creative tool that benefits both buyers and sellers. A lease option is a combination of real estate rental, sales, and finance techniques, that when used properly can be rewarding to all parties involved. A lease option not only creates an opportunity for sale, but also creates a valuable tool for maintaining a property. Listed below are just some of the benefits that a lease option provides to both buyer and seller:
Seller Advantages:
- Creates a strong demand from prospective buyers, even in a stagnant market place. The basis for such demand stems from the creation of a new pool of potential purchasers who would normally be excluded because of a down payment requirement.
- Monthly rental income, along with an up-front nonrefundable payment for the option. Thus, instead of a property sitting idle prior to sale, a lease option provides a method by which a property can maintain itself until the sale.
- A lease option will often produce quality tenants because the tenants now have a vested interest in the property.
- Tax benefits, because during the lease-option period the seller retains all property income deductions.
Buyer Advantages:
- Small amount of up-front cash required because there is no longer a down payment requirement. In addition, the option consideration paid is often in lieu of a security deposit.
- Portion of rent payment is used as a credit to buyers’ future purchase. The portion applied will often depend on how motivated the seller is to sell.
- As a tenant first, you have the opportunity to try out the property before fully committing to the purchase. Creates the potential for market value appreciation because the price will be locked in with the option. This brief analysis of a lease option offers a glimpse at one of the many alternatives available in today’s real estate market. This should not be viewed as an attempt to offer investment advice, but rather as a candid look into one alternative that is currently being employed. If you should have any questions about a lease option or any other real estate transaction, please do not hesitate to call our office. We are dedicated to providing sound legal advice, and are here to assist you in all of your real estate endeavors.
