Due to the severe downturn in the economy, many sellers are finding themselves ‘underwater’ in their homes. This means that they owe more money than the house is currently worth. This makes sellers desperate, and they will often make foolish mistakes in how they try to sell the house. That is where options that they haven’t thought of before come in. Most people don’t realize there is more than just the traditional one way to sell a house. A home can also be leased with an option to buy.
The lease with option is not new to the market, but it is has not been common in recent years. In the last decade, the housing market boomed and people who had previously been ineligible for a loan found themselves with multiple offers being thrown at them. Why lease when you could buy?
But now many of those new homeowners are underwater and need help, and that is where a lease option comes in. This is a traditional lease for a property (this could be residential or commercial) with an option to buy.
The other is a lease purchase, which is a traditional lease term that is also a purchase. Sound confusing? It really isn’t. A lease purchase is a lease that will become a purchase once any missing criteria are met. For example, a person may need to tidy up their credit before they can officially be given a bank loan for a purchase. They are given a lease while their agent helps them get the necessary credit rating to qualify for the loan. At that time, the lease then becomes a purchase.
The lease option or lease purchase works for both parties because it enables the desperate seller to recoup their monthly mortgage payments while still finding another home. It works for the buyer because there is no money down, and any appreciation in the property is to their advantage. If the market begins to recover as you lease, that value is added to the home should you want to sell it later, after purchase. It should go without saying that there is a lot to be gained by going this route, and almost all of the gain is for you, the investor.