Investing in Real Estate: Lease Option Benefits
Sign up for our FREE Monthly Email Newsletter
In addition to keeping in the financial know, you may be interested in checking your credit score and report.
¹The credit scores provided under the offers described here use the Equifax Credit Score, which is a proprietary credit model developed by Equifax. The Equifax Credit Score and 3-Bureau scores are each based on the Equifax Credit Score model, but calculated using the information in your Equifax, Experian and TransUnion credit files. The Equifax Credit Score is intended for your own educational use. It is also commercially available to third parties along with numerous other credit scores and models in the marketplace. Please keep in mind third parties are likely to use a different score when evaluating your creditworthiness. Also, third parties will take into consideration items other than your credit score or information found in your credit file, such as your income.
²The Automatic Fraud Alert feature is made available to consumers by Equifax Information Services LLC and fulfilled on its behalf by Equifax Consumer Services LLC.
³Equifax Credit Report Control™ is only available while you have a current subscription to Equifax Complete Premier. Locking your credit file with Equifax Credit Report Control will prevent access to your Equifax credit file by certain third parties, such as credit grantors or other companies and agencies. Credit Report Control will not prevent access to your credit file at any other credit reporting agency, and will not prevent access to your Equifax credit file by companies like Equifax Personal Solutions which provide you with access to your credit report or credit score or monitor your credit file; Federal, state and local government agencies; companies reviewing your application for employment; companies that have a current account or relationship with you, and collection agencies acting on behalf of those whom you owe; for fraud detection and prevention purposes; and companies that wish to make pre-approved offers of credit or insurance to you. To opt out of such pre-approved offers, visit www.optoutprescreen.com/.
4We will require you to provide your payment information when you sign up and we will immediately charge your card $4.95. After that, we will charge the card $19.95 for each month you continue your subscription. You may cancel at any time; however, we do not provide partial month refunds.
Equifax® is a registered trademark and Equifax Complete™ Premier is a trademark of Equifax, Inc. © 2014, Equifax Inc., Atlanta, Georgia. All rights reserved.
If you’re going to buy and hold, it’s important to attract quality tenants who will care for your home as if it were truly their own. And finding great tenants means understanding the business of real estate investing and getting to know your individual investment properties and potential tenants.
For the last 20 years, I’ve been using the “lease option” as my primary marketing strategy. A lease option gives tenants the opportunity to buy the home in the future, once they can secure a reasonable loan.
Simplifying the buying process, a prospective homeowner needs just two things: cash (for the down payment and closing costs) and credit to get a good loan. We teach a version of the lease option whereby an investor offers the tenant a minimum three-year lease, and in addition the investor applies 10 percent of the rent towards the tenant’s cash needs upon purchase. Therefore, the lease option gives tenants time to fix their credit, and—simply by paying their rent—an ability to accumulate much or all of the cash needed to purchase.
One of the realities of life in the United States is that no matter how bad the economy is, a family wants to live in a good neighborhood with good, safe schools and be a reasonable distance to employment and entertainment. Lease options give families the opportunity to lay down roots and the opportunity to buy in the future, even when they don’t have all the funds generally needed to settle in their neighborhood of choice.
For investors, a lease option helps to avoid discounting rents. Investors taking advantage of this strategy might also garner a higher-quality tenant—possibly even one who will put money into the property and who may sign a non-traditional lease of three or four years (or longer). In my experience, about 25 percent to 33 percent of these tenants turn into buyers—buyers who purchase the property with no real estate commission and no negotiation. When this occurs, the investor can turn the profit from the sale into two or three more homes to lease option.
I look at the lease option as a win/win for both landlord and tenant. The investor gets a long-term rental and the tenant gets an opportunity, which they might otherwise not have had, to purchase a home. How many other strategies can investors boast of that result in both huge profits and moving thank you letters from former tenants-turned-homeowners?
Andy Heller is the author of two best selling real estate books, including “Buy Low, Rent Smart, Sell High” which was recommended by Fortune Magazine. Andy has been investing in residential real estate for over 20 years, and travels the country teaching others how to get started in real estate investing. Most recently Andy co-founded www.RealtyJoin.com, the social networking site for the entire real estate industry. Andy can be reached on RealtyJoin, and encourages all to ask questions and friend him on RealtyJoin.
Help Is on the Horizon for Unemployed Homeowners
Housing Price Predictions: When Will Prices Rise?
The Cube Project: What Would You Give Up To Live In A Tiny House?
Now is the Time of the Real Estate Investor
Pet-Friendly Housing Steering the Real Estate Market
Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.