Lease Option, Rent To Own, Lease To Own, and Rent with Option to Buy Are All Saying The Same How to Get Top Dollar for Property Every Time
Lessons learned on exit strategies from rental properties and hard to sell real estate:
Having over 300 rental properties; equates to over-buying. Things were out of control with rental properties. With the help of an associate, and Real Estate Broker together developing a Lease with Option to Buy Program, which then was utilized to sell most of these rental properties. The Lease with Option to Buy Program resulted in the following: 1. Long-term tenants pay above market rent 2. Tenants who are taking pride in ownership, making improvements to the property 3. Sales that would not of happened otherwise, at above market prices .Using this exit strategy many times, it removed the overwhelming situation. Your tenants might not necessarily know the meaning of Lease with Option to Buy, but they do know the term, Rent to Own
Increase Profits Through the Use of Lease Options
1. Expect five times the number of responses than a regular "For Rent" ad. There are a lot of people looking for an opportunity to own their home.2. The tenants will be people inherently more responsible and serious about owning their next home.3. One will receive a monthly payment towards the option fee (the fee being paid to grant the option) in addition to the monthly rent, thereby increasing your monthly cash flow. 4. People looking to buy with a lease option are generally willing to pay a slightly higher sales price, often 15% higher.
To set up a Lease with Option to Purchase with a tenant, one will need all of the documents that would normally use to set up a simple rental/lease. (Rental Agreement, check-in/check-out list, Lead Base Paint Disclosure and pamphlet, Smoke Detector Agreement and any other agreements normally used).In addition, one will need an Option agreement, be sure to use one that protects as the Option or, as many option forms available favor the Optioned. Attached to the Option will be a Purchase Agreement, which will spell out the terms of the sale that the tenant may purchase under, in the future. NOTE: It is important that both parties just initial the Purchase Agreement on the top or bottom corner to acknowledge that the terms have been agreed to but it is not yet a binding Purchase Agreement. One will want to be sure to use an Option form that is non recordable, on the public records so that the tenant doesn't unnecessarily cloud the title to your property
How to structure a Lease Option:
1. Charge market rent. Don't give discounts on rent just because the tenants are also paying you a monthly option fee or they are planning on buying the house; the option is separate from the rental.
2. Get as much option fee up front. The more the perspective tenants pay up front, the greater their risk will be if they don't follow through. Credit the option fee towards the sale price if they close.
3. In Michigan, one can only collect equal to 1-1/2times the amount of the rental rent as security deposit up front when renting, plus one may have to give it back if the tenants move.
4. Make your option cancelable if the tenants default in any of the terms of the rental/lease. (We have this incorporated into all agreements)
5. Work with a mortgage loan officer to qualify perspective tenants. Have the loan officer advise on how long it will take to have the tenant "mortgage ready", then set lease option term accordingly.
6. When pricing property, one will be able to get more than market price, but remember the property will have to appraise for the purchase price when they qualify for the mortgage. 15% or higher is a good range, figuring their option fee being deducted and appreciation.
7. Make the tenant responsible for repairs and maintenance to the property; make sure the rental agreement states they are responsible for the cost of such repairs and renovations. (Keep in mind under Michigan law, owners are still ultimately responsible).
To learn more, visit our website at www.MrLeaseOption.com to see our class schedule and find out when our next Option Seminar will be held. Check out our products list.
Disclaimer
Real estate investing by nature is risky. Win, lose, or break even, we cannot guarantee a profit or loss. We do not provide legal, accounting, or contracting advice. Mark Maupin has purchased and sold in excess of 3,500 homes and properties. Mark teaches real estate investing seminars, and has real estate mentoring program.
Lessons learned on exit strategies from rental properties and hard to sell real estate:
Having over 300 rental properties; equates to over-buying. Things were out of control with rental properties. With the help of an associate, and Real Estate Broker together developing a Lease with Option to Buy Program, which then was utilized to sell most of these rental properties. The Lease with Option to Buy Program resulted in the following: 1. Long-term tenants pay above market rent 2. Tenants who are taking pride in ownership, making improvements to the property 3. Sales that would not of happened otherwise, at above market prices .Using this exit strategy many times, it removed the overwhelming situation. Your tenants might not necessarily know the meaning of Lease with Option to Buy, but they do know the term, Rent to Own
Increase Profits Through the Use of Lease Options
1. Expect five times the number of responses than a regular "For Rent" ad. There are a lot of people looking for an opportunity to own their home.2. The tenants will be people inherently more responsible and serious about owning their next home.3. One will receive a monthly payment towards the option fee (the fee being paid to grant the option) in addition to the monthly rent, thereby increasing your monthly cash flow. 4. People looking to buy with a lease option are generally willing to pay a slightly higher sales price, often 15% higher.
To set up a Lease with Option to Purchase with a tenant, one will need all of the documents that would normally use to set up a simple rental/lease. (Rental Agreement, check-in/check-out list, Lead Base Paint Disclosure and pamphlet, Smoke Detector Agreement and any other agreements normally used).In addition, one will need an Option agreement, be sure to use one that protects as the Option or, as many option forms available favor the Optioned. Attached to the Option will be a Purchase Agreement, which will spell out the terms of the sale that the tenant may purchase under, in the future. NOTE: It is important that both parties just initial the Purchase Agreement on the top or bottom corner to acknowledge that the terms have been agreed to but it is not yet a binding Purchase Agreement. One will want to be sure to use an Option form that is non recordable, on the public records so that the tenant doesn't unnecessarily cloud the title to your property
How to structure a Lease Option:
1. Charge market rent. Don't give discounts on rent just because the tenants are also paying you a monthly option fee or they are planning on buying the house; the option is separate from the rental.
2. Get as much option fee up front. The more the perspective tenants pay up front, the greater their risk will be if they don't follow through. Credit the option fee towards the sale price if they close.
3. In Michigan, one can only collect equal to 1-1/2times the amount of the rental rent as security deposit up front when renting, plus one may have to give it back if the tenants move.
4. Make your option cancelable if the tenants default in any of the terms of the rental/lease. (We have this incorporated into all agreements)
5. Work with a mortgage loan officer to qualify perspective tenants. Have the loan officer advise on how long it will take to have the tenant "mortgage ready", then set lease option term accordingly.
6. When pricing property, one will be able to get more than market price, but remember the property will have to appraise for the purchase price when they qualify for the mortgage. 15% or higher is a good range, figuring their option fee being deducted and appreciation.
7. Make the tenant responsible for repairs and maintenance to the property; make sure the rental agreement states they are responsible for the cost of such repairs and renovations. (Keep in mind under Michigan law, owners are still ultimately responsible).
To learn more, visit our website at www.MrLeaseOption.com to see our class schedule and find out when our next Option Seminar will be held. Check out our products list.
Disclaimer
Real estate investing by nature is risky. Win, lose, or break even, we cannot guarantee a profit or loss. We do not provide legal, accounting, or contracting advice. Mark Maupin has purchased and sold in excess of 3,500 homes and properties. Mark teaches real estate investing seminars, and has real estate mentoring program.
posted by Ralph Marcus (Mark) Maupin | 4:06 PM
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