Teaching Landlords to Find Their Quality Tenant!

What is a Lease Option?

by Allen Watkins

An option is an agreement between a seller, and a buyer where the seller is giving the buyer the right to purchase a property at a predetermined price, with in a specified time period. 
An option  must:

• Be in writing
• Consideration must be to the seller make it legal (usually money, could be
  something else)

This is a unilateral contract (binding on only one party to the agreement) The seller (optionor) is bound to sell as agreed. The buyer (optionee) may or may not exercise the option to purchase. If he chooses to not, then the consideration or option fee is forfeited.

A Lease Option is simply combining a rental agreement with an option agreement.

There are many benefits for both the seller and buyer.

Seller:

• Can get full value, or future value selling price
• More up front money because of the option fee which is tax free until the option is exercised or forfeited.
• Higher monthly rental payment
• Seller is still the owner during the option period and therefore receives the tax benefits.
• Tenant has incentive to take better care of the property since it is to be their home.
• Tenant responsible maintenance and repairs.
• Tenant has incentive to pay on time, late payments forfeit the option.

Buyer:

• Can build up equity in their home while they improve your credit rating?
• Have more time to build up their base income?
• Get a home in an area of their choice now instead of later.
• Lock in the price today.
• Get a better mortgage in 12-24 months than the one that they qualify for now.
• Has the option to walk away from the deal with only the loss of the option fee, and no other legal recourse.
• Has a home they can treat as their own, make improvements etc.

Lease Option technique creates a win / win opportunity for both the seller and buyer.

Discrimination is a serious issue. As you are looking for quality tenants, it is important to keep away from issues protected by the Fair Housing Laws. Under the Fair Housing Act it is illegal to refuse to rent to someone based on their race, color, creed, national origin, religion, sex, family status, or disabilities. Absolutely stay away from these issues when searching for tenants. I can tell you for a fact, none of these issues are determining factors on your tenant being a "good tenant" or a "bad tenant".

More Tips Of The Month

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• WSradio