Ron Owens' Blog

Blogs » Real Estate Coach » Georgia » Norcross » Ron Owens' Blog

Lease Purchase or Lease Option?

Tuesday, January 12

Many investors who want to sell a property but prefer to delay the actual closing may choose to offer the property for sale under a “Lease/Purchase” or “Lease/Option” program. Unfortunately, many investors do not understand the differences between the two methods. Lease/Purchase is sometimes referred to as “Rent to Own” and is a billion dollar business in this country. People “Rent to Own” appliances, furniture, automobiles and other items. This industry is popular among moderate income families for several reasons: 1) There is a low initial cost, 2) You don’t have to have “perfect” credit, 3) There are regular payments in a fixed amount and 4) You get immediate usage without while actually paying the full cost of the item. This concept applies equally as well for housing. For a buyer who cannot currently qualify for a home loan, they have limited choices. They can spend thousands of dollars per year in rent and have nothing to show for it but the prospects of doing the same thing the next year or they can buy your property under a Lease/Purchase or Lease/Option. But what’s the difference? Lease/Purchase is an actual contract to purchase property (usually a home) at a set price but allows the purchaser to live in the property for months, or even years, while accumulating the required down payment or qualifying for a loan to finalize the purchase. This type of arrangement has benefits for both the seller and the buyer but I will concentrate on advantages to the investor/seller. Potential buyers are much more plentiful. You determine the qualifications of the buyer. You determine the amount of the initial deposit. You determine if the deposit is refunded if the purchase is not culminated. How much, if any, of the monthly payment will be applied to the purchase is your decision. Of course, the terms you choose will effect how easy or difficult it is to locate a tenant/buyer. There are many other less tangible benefits to the investor/seller. Purchasers who cannot otherwise purchase their own home are willing to contract for a larger purchase price. They consider the property as "their house," not some landlord and take much better care of the property, often even adding improvements to "their" house. Collection of monthly payments are easier because the tenant/buyer knows that a late payment could cause them to lose their initial deposit and "extra" amount going toward the purchase as well as "their" house.

There are no set terms for lease/purchase or lease/option agreements. Most aspects of the contract are negotiable. These include the purchase price and amount of initial deposit, as well as the monthly payment and how it is divided between rent and payment toward purchase. In some states, a tenant/buyer can acquire equitable interest in the property. For this reason, it is important that you have a qualified real estate attorney to review your contracts.

Real Estate Coaches and Mentors

Tuesday, September 29

The current real estate market is one of the best environments for real estate investing in many years. Having lost faith in many other traditional investments, large numbers of individuals have recognized the opportunities in investing in real estate. Having previously kept their nest egg or retirement funds in the stock market, they are jumping into real estate with little or no knowledge of the profession. "After all" they may say "how complicated is it to buy a house and rent it out?"

As real estate professionals, we know that it is much more complicated and risky than it may first appear. To whom is the new investor going to go for advice and guidance? Too often it is the real estate agent who is trying to sell the property. In my experience as a real estate broker and instructor, I have found that most agents (and even brokers) know little about the profession of investing in real property. To them, a "short sale" is one where the buyer signs the contract on the first visit to the property.

Knowing the situation, many individuals are offering their services as a "coach" or "mentor" for these new investors. Unfortunately, many of whom are doing so as a means of getting access to the investor's cash and credit for their own risky deals. These self-proclaimed coaches have had no training in coaching and do not subscribe to any established code of ethics (but their own).

The American Association of Real Estate Coaches (AAREC.org) has established standards and a certification program for coaches. Members who have been certified and who pledge to abide by the Association's Code of Ethics can advertise themselves as a "Certified Real Estate Coach." Real estate in general and investing in particular has always had more than its share of con artists and hucksters. A professional association will help to eliminate a few from taking advantage of new investors.

Website:	http://www.OwensSchoolofRealEstate.com
Phone:	770-326-6622
Fax:	702-974-7680

BiggerPockets

Lease Purchase or Lease Option?

Real Estate Coaches and Mentors

Ron Owens

Categories

Archive

Recent Posts

Recent Comments