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Real Estate Investing : Lease Purchase Last Updated: May 14th, 2012 - 22:24:01


Lease with option to buy - buyer to initiate it

 
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One method of getting into a house for little up-front cash is the short-term lease with an option to buy. For some "consideration for the option" money (usually between $1,000 to $5,000), the seller gives you the option to purchase the house when the lease expires. An agreed-upon portion of the monthly rent payment is applied towards the purchase price if the the option is exercised. The option-consideration money is also applied toward the purchase. Until you exercise the option, the seller remains the legal owner, making the mortgage payments with the aid of your monthly rental payment. You do not receive any of the tax writ-off benefits until you actually purchase the house.

Note that the lease-option method doesn't lower the down payment, but it does delay the down payment by a few years. In addition to delaying the down payment, the lease option affords three advantages over other methods of home purchase. First you can test out the house before you decide to purchase. Many home buyers, sitting under a leaking roof, wish they could have had this luxury. Second, the lease option ties up a home for two or three years while you improve your financial standing. Third, you lock in the cost of the home now, so there are no surprises two or three years down the road. The agreement may specify an annual increase in the house price to cover appreciation, but often you can negotiate an appreciation figure lower than the actual appreciation

Homes are usually not advertised as "lease-option" deals, so you, the buyer, must broach the subject with seller. Good candidates for lease options are house that have been on the market for a while and houses that were formerly rentals.

 

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