A lease option, also known as a rent-to-own or lease-to-own agreement, is a real estate transaction that combines a traditional lease with an option to purchase the property at a later date. Here’s how it generally works:
- Lease Agreement: The tenant and landlord enter into a standard lease agreement, specifying the terms of the lease, such as the monthly rent, lease duration, and responsibilities of each party.
- Option Fee: The tenant typically pays an upfront fee, known as the option fee, to the landlord. This fee gives the tenant the exclusive right to purchase the property within a specified timeframe.
- Rent Payments: In addition to the standard monthly rent, a portion of the rent may be credited toward the purchase price if the tenant decides to exercise the option to buy. This is sometimes referred to as a “rent credit.”
- Option Period: The lease agreement includes a specific period, usually one to three years, during which the tenant has the option to buy the property. This period provides time for the tenant to improve their credit score or save for a down payment.
- Purchase Price: The lease option agreement includes a predetermined purchase price for the property. This price is typically agreed upon at the beginning of the lease term and is not subject to market fluctuations.
- Decision to Buy: At any point during the option period, the tenant can choose to exercise their option to buy the property. If they do, the option fee and any rent credits are applied toward the purchase price.
- Contract Execution: Once the tenant decides to buy, a separate purchase agreement is executed to formalize the sale. Financing is arranged, and the property is transferred to the tenant’s ownership.
It’s important for both parties to clearly understand and document the terms of the lease option agreement. Additionally, legal advice is recommended to ensure that the agreement complies with local laws and regulations.
Suppose you own a home and can wait out the term of a lease option to exit the property, typically from one to three years. Or perhaps you have a property you’ve had trouble selling. In that case, a lease option is an excellent sales method that can be pretty lucrative—combining the benefit of a flip by receiving a hefty option fee at the beginning of the contract with the benefit of long-term renters.
Of course, tenant screening should always be top-notch with lease options. First, you’ll want to perform a rigorous review to bring in highly qualified tenants, staying within all local, state, and federal guidelines governing tenants. Then, with the right property and the buyers in place, you could cash in on this advantageous method of selling real estate. So read on as we discuss how lease options work for your Queens house.
Lease options work for your Queens house because buyers are willing to pay extra to enjoy the benefits of homeownership while you allow them time to make sure they like the home, repair credit, or save towards a downpayment. In addition, because you must estimate the future market value of the property, you can set the sales price above the current market value. So while you risk prices soaring far above this number, you can mitigate taking a hit down the road by cushioning the sales price now; the buyers, on the other hand, risk home values falling and owing more for the property than the market value.
A large influx of cash is always a nice bonus, with the fee for the option typically ranging between two and five percent of the home’s sale price; this is another way lease options work for your Queens house. With the average sales price of homes reaching an all-time high of $400,000 in May of 2022, you could collect up to $20,000 for the exclusive right to buy the home by exercising the option. In addition, the option fee is typically nonrefundable.
Increased monthly cash flow is another way lease options work for your Queens house in the higher rental rates you can charge, with a portion of the rent payment to apply towards the down. The rental premium amount must be above the market average for many lenders to consider it for the downpayment, so be sure to check with mortgage lenders about the terms.
Eliminate Holding Costs
Essentially, lease options work for your Queens house by delaying the sale while your tenant covers your mortgage payments and utility costs that you would have paid monthly to hold the property. In addition, depending on the agreement, the tenants are also responsible for maintaining and repairing the property as if it were their own home. However, some contracts have shared responsibility for more significant repairs exceeding a specific amount, such as $500.
The local professional home buyers at Tristate Holdings 167 Inc. understand how lease options can work to your benefit for your Queens house. Our full-service in-house network of professionals can help you handle everything, from locating the perfect property to selling through a lease option to property management and everything in between. At Tristate Holdings 167 Inc., we have the connections and the team to do the job. Let us help you earn the highest possible returns on your real estate investments because we win at Tristate Holdings 167 Inc. when our investors win. Let the seasoned professional home buyers at Tristate Holdings 167 Inc. help you. And don’t forget to ask about our current inventory of the best lease option properties available in Queens. Call Tristate Holdings 167 Inc. at 1-(888) 788-7478.