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HOW A LEASE OPTION WORKS:
Most people are familiar with automobile leases, as more than 50 percent of new car transactions are now leases rather than sales. During the lease term, the “tenant” gets to test the car and see if it meets the driver’s needs. At the end of the lease, the lessee can either return the car to the dealer or exercise the option to buy the car.
Real estate lease options are very similar, although the dollar amounts are larger. Such realty transactions are a combination of rental, sale and finance for a fixed term, such as one year, three years or longer.
The longest lease option I have negotiated (as the buyer) was for 15 years. But I have heard of commercial lease options as long as 45 years.
Lease with Option to Buy -- Everybody Wins!
One of the best kept real estate secrets is the lease with option to purchase. Most home buyers and sellers, as well as their agents, have never heard of this technique. But thousands of people use lease-options to buy and sell homes every year with little or no money down.
Lease-Option Advantages:
- little up-front cash required (far less than a home down payment);
- opportunity to try out the home before buying;
- forced savings account rent credit toward the purchase price;
- locked-in option price if the home appreciates in market value; and
- a typical 25 to 50 percent rent credit, which is far better than homeowner income tax deductions
- home buyers DO NOT have to apply and be approved for a conventional home loan before moving in.
Who Should Use Lease-Options?
Home buyers who have credit problems should also consider lease-options while they clean up their credit. Rather than wasting money on apartment rent, would-be buyers who haven't saved for a down payment should also consider a lease-option home.
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