Important Aspects on Lease Option in Real Estate Investment|Things to Consider on Lease Option in Real Estate Markets|Getting to Know The Essentials on Lease Option in Real Estate Investing Recently, the real estate business is on its toes because of the sudden demand for lease option. Due to the market decline of real estate ownership in recent years, leasing has become a trending option and seems to be working potentially in areas where this form of option never worked before. It is imperative that any potential investor interested into lease option must first understand some vital considerations in leasing which could help a lot in making a better decision to rent or not. One must understand that lease option carries the right to rent and an option contract to buy the rented property by the rentee at an agreed price and at a specified expiration date. There are also many alternative strategies in lease options where an investor can buy a property and have it rented to an end-buyer or the investor can offer a lease option from a real estate agent and offer the property for re-leasing to the buyer. As an investor, you get to profit a lot from this lease option strategy, the gains of which can be sourced out from the following: the rent differential which is paid to the original seller and end-buyer, non-refundable fee which is not necessarily a deposit, and the profit taken when the buyer purchases the property.
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Even if the end-buyer does not decide to buy the property, the investor can still profit from the transaction since the non-refundable fee consideration is forfeited in favor of the investor.
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The first thing to act upon in a lease option with an end-buyer is to separate the lease contract from the option agreement. Two separate contracts can insure the investor of legally evicting the buyer in situations where there’s a conflict of interest and that a single document may be sufficient to present it in a court action. Requiring for a single lease option document may result into the court favoring the tenant and allowing the option consideration to be given back and with it granting him to break the lease contract. It is therefore wise as an investor to conduct a single lease option document to the original seller but transact for a dual contract to the end-buyer. Other important points of consideration in the lease option contract are the following: increase of the strike price by 3% to 5% after every 12 months, the terms of the agreements should be yearly and renewable every 2 or 3 years, the buyer should be responsible for all repairs up to $2,000 and the original seller is obligated to repairs and over-all mechanical systems over $2,000, the property must have an insurance to which the co-beneficiaries are the original seller and the investor, the rent to original seller must be nominally marked to 6% of the strike price from the option contract, the rent to the end-buyer must be based on what will be the mortgage payment if the buyer gets financing worth 2 to 3 years, and, finally, the investor’s lease should include the period when rent starts.