The renter, in a lease option deal, leases the house, for a fixed term, usually around a year, and sometimes more. The renter pays an upfront fee, which could be considerable, along with a monthly rent, which could be more than the normal monthly rent. The upfront fee and the extra amount of rent paid over the market rent go into a fund for lease option consideration. This allows the tenant the option to buy the rented property at a predetermined agreed upon price during the term of the lease. 

How do you protect your investment in a lease option?

The lease option is generally known to be slanted in the favor of the renter. However, the deal starts to sour when the seller decides not to keep his side of the bargain. Of course, you, as a buyer, can take a recourse to law, but that could take years and a bundle in legal fees, before you force him to sell.

You can start to protect your lease option, first by recording your option. Ensure that you sign your option in the presence of a notary, and record it in public real estate records. The alternate to the option not being notarized is to sign an affidavit known as a "memorandum of option" and file it in the real estate records. Though this does not create a lien, you give the world a public notice of your interest. 

Next, you can create an escrow. You need to protect yourself, as who will sign the deed if the seller dies in the meanwhile, or disappears. Create an escrow up front in which an attorney holds the executed deed. When you decide to exercise the lease option, you simply arrange to hand over the money to the escrow agent and collect the deed.

One other thing you can do is to record a mortgage. Remember, a mortgage can be recorded to secure performance of any agreement, even a purchase option. You, the buyer, can have a mortgage recorded to secure a payment on a promissory note. You now become a lien holder, similar to the position of a secured lender. If in the event the seller refuses to sell, you simply foreclose. To protect himself, now it is the seller who has to approach the court, and not you!

What are the lease option advantages for the seller?

A lease option offers some advantages to the seller. If there is a strong buyer demand for a lease option, the seller can ask for, and get, top dollar for the property. In normal circumstances, the option price is the market value at the time of signing the lease option. If the property prices increase, you benefit, and if the prices fall, you would probably opt out, and the seller gets to keep the extra money put down. 

The seller usually asks for extra rent, over and above the market rent, usually 10 to 20 percent above. During the period of the lease option, the seller gets all the property income tax deductions.

How is lease option advantageous to the buyer?

Lease option deals offer some advantages to you, the buyer, as well. In lieu of a security deposit, usually a small amount of cash, upfront, is required to acquire a property on a lease option. 

What is unique about a lease option deal is that the extra rent you pay over and above the market rent is credited towards your down payment. The extra cash you have dished out motivates you to exercise your option to buy.

Another unique advantage you, as a buyer, have is the ability to control a property with very little cash, and profit from the appreciation in the market value of that property. In addition, it gives you another advantage of trying out the property, before buying. If you find the property not to your liking, you can walk out of the deal without having tied down a lot of cash.

What does the ¡°lease option¡± contract contain?

The lease option contract is a combination of two contracts: the lease contract and the option to buy contract. A lease contract is an agreement, between the property owner and the lessee ¨C the tenant who takes a temporary occupancy of the property; whereas as the option to buy contact shields the person making the offer from allowing the property seller to cancel, or withdraw, the contract.

The contract has 60 legal forms, which include: Lease Purchase Agreement, Performance Mortgage/Deed of Trust, Memorandum of Option, Lease Option Deposit Receipt, Tenant's Purchase Option, Escrow Agreement, among many others.

You can find the lease purchase agreement and other real estate forms

http://www.buyincomeproperties.com/FreeRealEstateForms.htm

 

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