Thursday, January 16, 2020
Lease Options (Seller Financing Part 3)
My Favorite Strategy is Lease Options!
Think of Lease Options as the best of both worlds. It is a benefit for everyone involved, seller, investor, and end buyer. They are so versatile and can really be used all over the place. When both buying and selling.
What is a Lease Option?
Ok, think of this in two pieces, and oftentimes there are two different documents or vehicles to effectuate the transaction. There is a Lease and there is an Option. Together, they make up the Lease Option. Often times the Lease document, does not reference the option. It's just a simple lease, that has payment amount, dates, default terms, and term of the agreement.
Then, you have the option. Think of an option like a purchase agreement without any recourse if the buyer doesn't buy. It's basically an agreement that the seller must sell and the buyer has the opportunity or the "option" to buy the property with terms (within this period of time, and if the buyer follows these terms). One of those terms could then and often times then, references the Lease. Hence the Lease-Option. My other post about Options will go into further details on how to structure Options for both parties.
Why Do This? Why would you finance your buyer? Simple: to sell it.
Why does the buyer need this? Simple: they can't qualify for a new loan
It benefits both parties. From the seller's perspective, they get a house sold fast and oftentimes at a premium. You may have a property that won't sell for some reason Seller financing gives you an advantage compared to the house for sale down the street. Of all the buyers out there, only 35% of them can qualify for a new loan. That leave 65% of other people who want to buy and want to build equity and realize their American Dream, (buy buying a house), but they can't qualify. These are good people who maybe have had some life event that caused them to have poor credit. Or maybe they work for themselves and don't have 2 years of W2s to submit to a lender.
Speed and higher price. Those are the two benefits for the seller. The benefits to the buyer are obvious.