October 13, 2010

A Seller's Guide to Lease Options

A Seller's Guide to Lease Options
In the first part of this series, I gave a brief overview of what a lease option is and is not.  If you need details on the terms, check there.

Many people think that only desperate sellers and real estate investors are the only types of sellers that try to sell via a lease option.  Hopefully, this guide will help to change your mind if you happen to be one of those people.

Why Offer A Lease Option When Selling?

Even if you are wanting to sell outright (normal sale), it may be wise to offer a potential lease option.  Why?  More potential buyers, that's why!  Anytime you offer something other than "get a loan and come talk to us" you property will get more attention.  And contrary to popular opinion, most buyers looking at lease options are not "the bottom of the barrel."  In fact, many may be in a position to buy now, if the price is right.  A lease option gives them a choice and that's appealing to today's generation.

Moreover, it's not getting any easier to get a loan these days.  Even if a buyer is qualified to buy today, the process may take longer than they, or you, may want.  A lease option is a viable "in between" solution.

Are There Benefits to a Lease Option for the Seller?

Yes.  Of course, the benefits may vary depending on your situation.

One major benefit
of a lease option is that price is rarely negotiated in a lease option deal.  The terms and conditions are usually the primary factors.  That's not to say that you can over-price the property and have no problems getting it.  The home still has to be priced right, but you'll usually sell at the top of your value range rather than the bottom.

It's a delayed sale.  Again, this may or may not be a benefit depending on your position, but many sellers view this as a positive.

You'll get more money You get top dollar on the purchase price, but you'll also get to collect lease payments for the term as well.  If you're profiting $200/month, that's an extra $2400 per year in income.  Plus, the option fee is yours the minute you cash the check, as well.

You may get tax benefits.  There are taxable benefits to owning rental property, so check with your accountant.

What About the Bad Stuff?

Like anything, there are pros and cons, and a lease option is no different.

You are a landlord.  Being a landlord isn't for everybody.  Lease options often have conditions that make the landlording job a bit easier, but you are still a landlord.  You may have to evict the tenant/buyer at some point.  If you think that you won't make a good landlord (or if you're going to be an out of state landlord), you need to consider hiring a good property manager

You may get your property back.  And it may not be in as good a shape as you left it.  Most tenants in a lease option treat do not trash the house.  They are intending on it being fully their house someday, after all.  However, not everybody has the same standards, and sometimes, if you get the house back, it may require some fix-up to get it back into sale shape.  The counter to this is to get enough option fee to help cover this cost.

You may lose some tax benefits.  What?  One of the pluses is getting a tax benefit, how can you do both?  Well, as it stands, today, if you've owned the property long enough and it's your primary dwelling, you can sell and the profits (up to a certain amount) aren't taxable.  Check with your accountant to see if selling via lease option would affect you on this.

So, if you're selling, you may want to consider offering a lease option.  And if you've got any questions, you can always call me.

Guide to Lease Option Series
The Quick Guide to Lease-Options  
A Seller's Guide to Lease Options


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