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Home > Finance > Leasing > Lease Option Technique
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Lease Option Technique
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Why do people sell properties using lease options? There is a reason
that some of the most successful real estate investors use the lease
option technique.
No Down Payment: I know what you're thinking, "I would never offer such
a thing!" You don't have to. As a real estate investor rich in tools to
find motivated sellers, you could get your next home using this lease
option technique with no money down. You don't have to tell the seller
that an option fee may be customary!
Principle Pay Down: If an option is accompanied by a lease the
possibilities are greater for increased equity build up. By applying a
portion of the monthly lease payment amount to the purchase price of
the property one has the opportunity to widen the gap between the
market value and the loan amount. Depending on whether the monthly rent
amount is inline with market rates...this is free money! A 30-year
amortized, $100,000 loan at 7% begins at approximately $82 per month of
principle payments. A $100 per month rent credit beats that, dollar for
dollar, every month for almost 3 years!
No New Loan: Possibly the most noteworthy advantage of using a lease
option in the residential market is that when the optionee begins the
purchase process no "new loan" is required. The prerequisite for this
may be working with the right and informed mortgage broker but is
usually easily accomplished through a refinance. This can mean no
additional out-of-pocket money for closing.
Appreciation: One of the typical advantages of controlling a property
using an option is that the buyer retains the right to capture some, if
not all, appreciation during the term. The longer the term, the greater
the appreciation can be. In the single-family arena, where terms are
usually 12-24 months, even moderate amounts of property appreciation
can add up. For the buyer, especially, every percentage point of
appreciation counts. And, if you're nice enough to offer (or get) a
24-month term in a market increasing at 3% annually, $6,000 on a
$100,000 property is significant.
It is better to use your own strategy against you, if you are in the market for new home
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