What is a Lease Option?
What is a lease option? And can knowing what a lease option is help you to sell your property even in today’s market?
It is no secret that today traditional methods of selling property just aren’t working. Perhaps you’ve experienced this personally. You may even be looking for an alternative method to sell your property.
Well, a lease option is an alternative method to sell property which can often come up trumps when traditional ways to sell don’t work. By discovering and understanding the answer to the question “What is a Lease Option?” you can tap in to one of the most innovative, quick and convenient ways to sell property in today’s market.
The Problem with Today’s Housing Market
The housing market across the country is on its knees because many buyers cannot borrow and many sellers cannot afford to let their property go at a discount. Many estate agents across the UK report that it has become much more difficult to earn a living.
In an ever-changing world, selling property quickly and easily seems to be a thing of the past. Perhaps now is the time to discover a little more about how lease options work and exactly “What is a lease option?”
So What is a Lease Option?
A lease option is not a new method of buying and selling property. Until relatively recently something very similar was the standard way to buy and sell property in France. Huge swathes of property in the US, Australia and other countries have in the past been bought and sold using lease options. So a lease option is not a new-fangled, unreliable or untested instrument for buying and selling property. It is a well-established solution which comes into its own when the property market is slow or stuck. Understandably, and perhaps in part because they side-step the need for new finance, some financial institutions are not overly enamoured with lease options.
Now just stop there for a moment and imagine being able to buy and sell property without the need for new bank finance! Imagine being able to do that quickly and with a minimum of fuss. A lease option can unlock the door to many routes out of property. Just consider the following:
- A lease option allows a buyer struggling to get bank a mortgage today to move in to a house while they build up a deposit or improve a shaky credit rating.
- A lease option allows the potential buyer to enjoy their new home from day one.
- When competition is fierce and the market is slow, a lease option gives the seller a huge financial advantage over those who can only reduce the purchase price to make the property more financially appealing.
- Lease options effectively widen the ‘buyer funnel’ making an otherwise unaffordable home attainable to many potential buyers.
- A lease option often allows the seller to achieve a better price than would otherwise be possible on the open market.
- A lease option is often the only way some sellers will be able to sell the house in the current market.
Lease Option Education is the Real Issue
In order to use lease options to their full potential more than one Estate agents, sellers and buyers need to learn the power of a lease option and use them to their full potential.
So How Does a Lease Option Work?
A lease option works in the following way:
- The seller and the buyer agree that the buyer can buy the property for a certain price within a set period of time.
- During this period, which is known as the option period, the buyer pays a monthly sum – like a lease.
- By the end of the time frame set out at the beginning the buyer either buys the property for the agreed amount or hands the property back in a good condition, and forfeits any payments made.
- During the option period the seller is unable to sell to anyone else, so the buyer has security and certainty.
Using a Lease Option – What are the Advantages?
Advantages of Using a Lease Option for the Seller
- You can make your proposition more attractive than that of the competition.
- During the term of lease option the seller receives a guaranteed monthly payment whereas normally during a house sale the property is expected to be empty if the seller is not living there themselves.
- Because the seller is willing to sell with terms from a higher than market purchase price is often achievable. People will pay more for convenience.
- In a case where the seller really needs and wants to sell but can’t reduce the sale price a lease option allows them to move on.
- A lease option affords the seller more security and certainty than simply renting a property out to transient tenants.
Advantages of Using Lease Option for the Estate Agent
Can estate agents really afford to ignore lease options as selling solution? What if a lease option used well brought the following advantages..?
- No need to turn away potential buyers because they are struggling to qualify immediately for a mortgage.
- Rather than being unable to meet the needs of a strongly motivated client, you have ideas which work in practice and can provide a genuine solution.
- You can collect a commission when the tenant buyer moves in rather than your client being forced into becoming a reluctant landlord.
Understanding the answer to the question we raised – “What is a lease option” can change the whole game for an Estate Agent. It’s another string to the proverbial bow and another tool in the tool-bag.
Using a Lease Option – The Advantages for the Buyer
Imagine being able to live in a house and make it a home from day one! No mortgage needed!
Of course the lease option gives you a certain time frame within which you will need to buy, or walk away. You could always renegotiate the terms of your lease option agreement and extend the term. In a market that stays flat for a long time that would be a great solution for both sides, as it is unlikely that the seller will want the property back.
So if you want to exercise the option and own the home, you may need to get a mortgage at a later date, or buy cash and buy your home. It would be at this point that you would complete on the purchase and the title would now be in your name.
- You can move in and enjoy the property as your home from day one.
- The agreement may even allow you to rent the property out and make money from the arrangement.
- You don’t need to get new finance to get started.
- Remember – the opportunity is all about the property + finance – which often makes the whole deal much more attractive than simply buying a house for which you need finance.
- With a lease option the purchase price is agreed at the outset and if the property increases in value, either due to the market lifting or through improvements you have made, the gain is yours.
“What is a Lease Option”? Understanding the Answer Means Having a Choice
A lease option is, in a nutshell, a property transaction mechanism which comes with huge advantages. It allows people to move in and move on. It can lift a market which is in the depths of depression, even if that positive effect is limited to only those who understand what a lease option is.
Of course, there are pitfalls to lease options too, anything that is this powerful and can be used to the advantage of buyers and sellers can also be misused. The buyer and seller will need to be aware of the pitfalls and get independent legal advice before entering into a lease option agreement.
All in all a lease option is a powerful instrument for change, and can open doors which are otherwise tightly shut. There are huge advantages for property sellers, estate agents and potential buyers alike. Whichever category you personally find yourself in, the key to benefiting from them is understanding the answer to that important question – “What is a lease option?”
To find out more about how to use lease options please see the Lease Options Investor Handbook.
