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What is a lease option and how does it work?
I was going to approach one my tenants to see if he and his family would be interesed in moving in a house. I would buy the house and do a lease option.. What do you think?
Public Comments
- yes yes. a lease option: the buyer has the OPTION to buy the house in a year or two (whatever the terms are). typically OPTION money is put down on the house (this is not a down payment according to the title company or the lender--this is non-refundable option money). but in reality, it acts as a down payment and goes to the purchase price of the house. it sounds like you're talking about a "master lease option." that means:: Fred does a lease option on George's house. Fred turns around and sub-leases the house with the option to buy to Sally. in a year, fred buys the house from george and then a few minutes later sally buys the house from fred. the upside for everyone: george gets money every month without any maintenance, and then a lump sum at the end of the term. woohoo! fred has control of the property without ownership (no loans!), and shares in some of the appreciation of the property sally gets into a nice house that she may not qualify for yet, with part of the rent going to the purchase price every month. it's a slick deal. make sure everyone is aware of what is going on. also, make sure that the tenants know what to do to qualify for a loan at the end of the term! best of luck! gertieok
- In addition to the first answerer, things you should be aware of: in recent years several states have initiated acts to prevent tenants from being screwed over by their landlord and losing the value of the lease option, limiting the manner in which a landlord can finance the land (usually to one mortgage only). Great for the tenants, can be a pain for the landlord. In addition, in certain states lease option holders have greater rights than just what is written into the contract, such as "all rent going toward the final purchase cost". you want to contact a local real estate lawyer or the department of your state which handles real estate law management and make sure there are no other sticky laws BEFORE you agree to the idea even verbally. Verbal contracts are binding in some states. Oh and in regards to the option money, depending on the state you are in, it may not HAVE to go toward the purchase price of the house like the first answerer stated, in many states it IS seperate money, a fee you can keep.
