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A: What you
are describing is a lease option arrangement. It sometimes happens
that a buyer does not want to purchase, or cannot purchase, immediately,
and a seller does not want to sell, or cannot sell, immediately.
In this situation, both parties may want a "lease option" arrangement.
In general
terms, a lease option is an arrangement where a prospective buyer
move into a property as a tenant. The buyer has the right to buy
the property for a specific price during the option period. The
monthly rent is equal to the fair market rental rate plus an additional
sum. The additional sum is credited to the buyer at closing, should
the buyer exercise the option to purchase. If the buyer does not
buy the property, then the additional monthly payments go to the
owner.
Lease option
properties can be located by real estate brokers. Lease options
contracts should be reviewed by attorneys for each party to the
transaction before signing. Also, before entering into a lease
option arrangement, speak with lenders to review current financing
requirements.
Here some
other advantages of a lease option:
1. Low down
payment to get into property.
2. Qualification
restrictions are not as great as conventional financing.
3. Past credit
problems are not usually a road block, as they would be in the
case of conventional financing.
4. Your rent
money is finally working for you for a change … part of your rent
payment is credited to the purchase price.
5. Purchase
price is usually locked-in ahead of time (prior to close of escrow).
That assures you of increase equity in the property when you buy
it.
6. Time to
check out the schools, churches, shopping malls, health care facilities,
recreation amenities, your neighborhood, your neighbors (do they
play loud music at 2 am, or have a karate school in their garage?)
before you actually buy the house.
7. Puts you
in legal control of a property for a specified period of time
without having to actually own the property.
8. Time to
shop for and obtain the best financing.
9. Leverage
(using as little of your money as possible to purchase a really
nice house!)
10. NO taxes
or insurance (except renters insurance) to pay
11. Major
maintenance and repairs are the owners responsibility, you take
care of only the minor maintenance.
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