Would you reccomend lease optioning a home instead of selling?

Question

It's seems the seller market is at a slow this season. I have been considered renting my home out with option to buy it, but I want to cover all ends, I mean what if the potential Buyer doesn't buy at the end of the contract? Or if toward the end of the contract they are no closer to buying as they were when they began to rent it? And can I still sell it, if I change my mind about selling it to them in spite of a contract? Not to be rude, but I do plan to keep a watchful eye on their credit to see if things do change during their stay (via a signed form of course).

Answer 1

No. Most poeple that exercise that option have poor credit.

You are wasting your time monitoring their credit. If their credit changes during their stay, you have ZERO legal grounds to evict if they are timely with their payments until they are 30 days past due, even if they are late every month. For that reason, no attorney or Realtor is going to allow a client to sign a option contract where a landlord to pull credit anytime that they wish. That just falls under "ain't none of your business after I move in" catagory.

I have seen tons of these and only a precious few come into fruition where the house actually was able to sell. The home is usually left in poor condition and the landlords usually have to sink money into it before they can sell it on the open market.

NO ONE that has successfully done an option...would do it again, that I have worked with. (from the selling side)

The biggest myth in Real Estate is that you can put anything in a contract and if both parties sign it, it becomes legal...not true...if it benefits one party so much that the other is at a disadvantage, or it violates statutory law, a judge will throw it out as if there wasn't one to start with.

You seem to think that the contract is one-sided...you have the right to change your mind at any point, and the people who are purchasing the option is bound by the contract...you can't have it both ways.

If you do the option, you CANNOT change the terms of it...PERIOD until contract end. You can't change your mind, you can't rent it to someone else, if the property value goes thorugh the roof, you can't increase the final agreed-upon price...none of those will be available to you. You can't mortage it, second it, I could go on and on.

I would highly advise you to speak to a Real Estate attorney who can educate you further about lease optioning before you get yourself into a mess.

Answer 2

A lease with an option to buy is a tool used in the real estate field for a variety of reasons. I have had good success with lease options, both with the person exercising their options and even when they didn't because I knew that I had a renter for a certain amount of time.

With a lease you normally get a certain amount of up front cash for the buyer to exercise their option.

If the person can not for some reason, be it credit or failure to be able to secure a loan the house reverts back to you and the lease with an option is terminated.

You may waste your time getting a credit check on your person you have under a lease, why are you putting yourself through this stress.

During the time of the contract you may not sell the property or do anything to the property until the contract has expired.

The other thing is they person leasing the property feels as if they are buying so any repairs or lawn services might be added to the contract and that a certain percentage of any repairs are their responsibility as well as taking care of the lawn.

You might also add that a certain percentage of the rent will go toward the down payment provided the option is exercised. If not you get to keep all of the rent.

At the close of the contract if they did not exercise their option you keep the upfront money and you either rent it, sell it or you can lease it to them again for an additional up front fee.

The property will either go up in value, remain the same or go down in value. That is the risk investors take when investing in real estate, stocks or precious medals.

There are many variables that go into a lease option, it might be to your benefit for you to consult with a real estate professional for advise. They might also have a sample lease option contract.

I hope this has been of some use to you, good luck.

"FIGHT ON"

Answer 3

It's hard to predict what type of buyer you will find for this type of contract. Asking yourself, if its a buyers market, why dont they just buy? most likely its down payment or credit. In any event, make sure you put all aspects of what you want into the contract, including the periodic credit checks and your opt out option. But, not to be rude, but if I had the good credit I could 100% financing on the current market value and not need a down payment or any contract the seller will want to check my credit alot and maybe not even sell to me. I wonder what kind of "real" buyer would go for that. Anyway, good luck to you and hope its works well for you.

Answer 4

Your better off selling in my opinion.

Why?

If you have gains in the house that can be locked in today, you will pay no tax on those gains ($500,000 if your married, $250,000 if you're single) if you lived there as your primary residence for 2 years and 1 day.

Internal Revenue Code Section 121.

This is the absolute best gift to ever come down the pike, and could be taken away by the congress and the president at any time.

Let's say you lease option.

Interest Rates continue to climb, and the home goes DOWN in value, the renters say "why would I pay more for your home than I can buy one down the street for"?

They DO NOT excercise the option and move out.

You're back to square one and you've lost your special tax status (IRC 121)

Many seller's today are not considering the tax consequences of their actions and it will bite them down the road.

Terry S.
http://www.Welcome2Arizona.com

Answer 5

Once you sign a lease option, you are contracturally bound to abide by it unless either part breaks it.

Some ways for a contract to be broken:

1. They stop paying their monthly installments.
2. They damage the property or make signficant changes to the property in ways not covered by the lease option contract.
3. They fail to secure financing at the end of the lease option.
4. The contract is broken by mutual agreement, in writing.

Secure yourself by having a downpayment at least equal to the amount they will be paying over the life of the lease option. For instance, if the lease option includes a two year option to get financing and they pay you $500/month until that two years is up, I would recommend that you get a down payment of no less than $10K to $12K.

The bad news is that all of that money will go to offset the price of the house - that is set in the lease option contract. Meaning that if you are selling the house for $100K that at the end of two years they only need to find financing for $76K minus the lender's down payment requirement plus closing costs. That is $100K -$12K (monthly payments) - $12K (original down payment to you).

The good news is that if break the contract ... even if that means they break it because they cannot find financing for it ... then you get to keep all of the money for your troubles (minus taxes of course) and can then try and resale the house for whatever you can get it for.

Third option is to renew the lease option with them, but require them to put down another down payment to resecure their option minus any fees that you stipulate.

People make money doing this, but properties can get really trashed. Its a good short term solution to a home you can't sell, long term you'll need to find other options.

Answer 6

i would definitely consider it, i heard you could make some good money doing that.