Lease Options - Good Or Bad

Lease options are a great way to buy a house. You don't have to come up with a 20% down payment, lenders aren't going through your life with a fine tooth comb, and you get to try on a house and neighborhood before you buy. Part of your monthly rent is also often applied towards a down payment when you buy. But the best part is if you don't like it, you don't have to buy it.

For sellers, its a great way to get a great tenant. Its a fact that if someone has a vested interest in purchasing the property, they'll take better care of it. They put up some option money upfront which will be applied to their down payment when they buy your house. If they choose not to buy it, the option money is nonrefundable. Even when you credit them part of the rent towards the down payment every month, if they don't buy, they don't get that money back either.

Sounds Great! What's the downside? The downside is only about 20% of lease options are ever completed. Usually its because the buyer couldn't get their credit together enough to actually qualify for a mortgage. But lately its may also be due to the seller possibly losing the house to foreclosure. They may have gotten behind on the payments for the property because the mortgage just went from a low monthly ARM payment to a huge fixed payment and the seller can no longer make the payments because the rent they're receiving isn't enough to pay the mortgage. Its a risk for both parties.

One more thing I want to make note of. Sellers please note that just because someone chooses to lease option doesn't mean they're stupid or can't read and they don't know what is going on in real estate. They're not going to pay more for your house than its worth and they're not going to pay much more than market rent. If the value on your home has dropped in the current market, and thanks to the media reminding us, values are still dropping in some parts of the country (especially here in Las Vegas -- houses dropped over 20% just last year and continue to drop 1-2% a month, more in some neighborhoods than others). That means that buyers will NOT pay $50-100,000 or more than the property is worth when its time to exercise their option to buy. The house will still have to appraise. If the house would rent for $1500 a month under a normal lease, a lease option buyer is not going to pay $2500 a month just for the privilege of lease optioning. It is reasonable to get $100 to $500 more a month (depending on the size of the house) IF you're going to credit that amount to them when they exercise their option. And they probably won't come up with 10-20% as an option fee. 1-2% is reasonable. If they had 20%, they'd buy, wouldn't they?

Would I recommend lease options as a way to buy or sell? ABSOLUTELY, with two caveats.

First, as the potential seller you must understand that the buyer is probably buying this way because they have shaky credit they need to work on and need time to build up a down payment. If the buyer had great credit, they would be buying not leasing. Please be reasonable when lease optioning your property. Its yours and you have a right to lease to whoever you want, but lease option clients are usually better than just renter tenants who don't care about the house or condo they're renting because its not theirs.

For the buyer, you must be diligent and check on the status of the property you're lease optioning so you're not surprised when someone knocks on your door to say the house just got foreclosed on and you have to move. If you want to know how to check this out without paying an arm and a leg to find out, call or email me and I'll tell you how. It's public information and readily available. Also remember, that the option money you put up is not refundable if you don't buy the house or condo. It was a promise to the seller, and now that money is theirs.

If I can help you find a lease option or help you lease option your property, drop me an email or give me a call.

Heather Peck
Rosen & Company West
www.HeatherSellsVegas.com
lasvegasexpert@yahoo.com