November
2006
Lease Option: Advantages to a Seller in a Slow Market0
The two parties involved are the landlord/seller and tenant/buyer. Some percentage of the rent is usually applied to the purchase price. This is negotiable and there is no standard amount.
In a hot market, the seller can usually just hire a talented broker and get the property sold for top dollar without having to lease it. In a slow market, the property may sit and cost the seller money if the property is vacant. This is where a lease option can be a great choice but getting it done is the tough part. More on that below.
It’s important to understand the pros and cons of lease-options to maximize your benefits.
Advantages for Sellers
- Top Dollar Option Price: Because you are helping the tenant/buyer with great terms, i.e. allowing them to purchase in the future, the sales price can usually be a bit higher than what you would net after sales commission if the sale took place now.A company like Landco West Inc. (LandcoWest.com) will lease-option your property and you pay no sales commission. They often sublease it to relocation executives moving in to the area that can close the sale in a few months. This situation can save you tens of thousands of dollars rather then have your property sit vacant and not sell.
- Top Quality Tenants: During the lease-option, the tenant-buyer usually take good care of the property as if they own it.
- Cash Flow: In a slow market it is not only hard to sell a home, but it is often hard to rent a home since there is so much inventory of both. The lease-option can often attract the solution to your problem sooner.
- At or Above Market Rents: Another seller advantage is earning above-market rent.
- Sellers Keep the Tax Deductions: During the lease-option period, the seller retains all the property income tax deductions. If a tenant complains about not receiving any tax benefits, a reminder about the rent credit toward the down payment usually ends the discussion.Advantages for Buyers
Lease-option benefits are not one-sided. Advantages for buyers include:
• Small Amount of Up-Front Cash Required: The amount of up-front cash required to acquire a home or other property on a lease-option is usually small.
• Monthly Rent Credit Builds a Down Payment: The unique characteristic of a lease-option is the rent credit toward the buyer’s down payment. The higher the rent credit percentage, the greater the probability the tenant will buy.
• Try Out the Property Before Buying: Another special lease-option benefit for the tenant is the ability to try out the property before buying. If it is undesirable, the tenant hasn’t tied up a large amount of cash in a home that might be difficult to resell.
The challenge for the seller is that finding the right tenant-buyer is not easy. Often the best candidates for lease-options presently reside out of the immediate area or even out of state. This is where I might be able to help you and by using Landco West, without a sales commission. Please call me to discuss:
Scott Farrell 805-497-6661 or Email me at Scott@HomeAdvice.net