Essential Considerations For Lease Options

Buyers in today’s market are looking for a great deal.  Those that don’t qualify for traditional financing often look at non-traditional means to acquire an interest in a property.  A great way to acquire an interest in a property might by by utilizing one of the following tools: Lease Option, Land Contract, Option To Purchase or Rent To Own (they are all pretty similar.)  Using one of these tools can get a buyer an interest in a property that they might not otherwise be qualified for it does come a cost.  There are lots of great articles on the internet that describe what a lease option is and how it works.  Explaining the mechanics is not what I am looking to do in this article.  Lets look at the real world application of a lease option.  What are some considerations that should be looked at determined before entering into this type of arrangement?  Here are some essential questions that need to be answered:

• What will the term of the lease option be? (1 year, 2 years, 5 years or more???)

• What will the cost of the lease option be? ($1000, $2000, $3000 per month?)

• What the lease payment cover? (taxes, utilities, principle reduction, just the option?)

• What is allowed to be done to the building (cosmetic changes or extensive renovations?)

• Who will pay for these changes? (the tenant or the owner)

• How much money is required as a down payment? (is this applied to the principle if the option is exercised or is it just the cost of the option?)

Once you have these questions answered you can then create a contract that covers these issues. This formal offer is then presented to both parties for consideration.  Typically there is a lot more ground to cover in an option verses an outright sale of a property.  As such negoiations can take longer and be more complicated.   Beginner investors many times have a view that is skewed in their favor to the extent that it does not make financial sense to the seller.  Remember the seller is the one that has the most to loose on this transaction so the higher the risk the higher the cost for the buyer.