Lease options are becoming a very popular again. We receive many calls each day, customers interested in purchasing homes in Cape Coral via lease options or some type of seller financing. It has become more challenging due to the lack of inventory being offered at this type of arrangement. Many home buyers are unable to buy because of a recent foreclosure, deed in lieu or short sale. Instead of shuffling their family from home to home they long for a place to call their own.
What is a lease option?
• The Lease
The lease agreement is set up from anywhere to 1 to 3 years. First and last month’s rent included to get started. Rental rates are higher than standard rates because the tenant/buyer will be receiving part of their monthly rent towards the purchase price.
• Contract for sale and purchase
This price will be based upon the projected market value at the time the lease ends and the sale is to take place. The tenant/buyer will also put a non-refundable deposit down as well. We have found that in our area the norm is between 10-20%, but can always be negotiated. The amount will also be credited towards the buyer’s closing cost and/or the actual sale of the property. This is a NON-REFUNDABLE deposit; if the tenant/buyer defaults for any reason it goes directly to the property owner.
• Option agreement
An attorney will draft this portion of the agreement.
The guidelines are as follows for property owners in and around Cape Coral, FL:
You must own more that 50% LTV(loan to value) and be free of any liens.
We will collect a non-refundable deposit for you. 50% to you and the other half will go towards the full commission, to be paid at the closing of the property.
Here is an example of how a lease option would work:
You lease the property to a buyer/tenant for $1,200/month with an end purchase price of $100,000.
The buyer puts down a $5,000 non-refundable deposit that will be used towards the purchase at the end of the term (usually 1-3 years). In that time frame the tenant/buyer will be actively working on some type of financing at the end of the term.
Paid up front: $5,000 non-refundable deposit
First Month’s Rent: $1,200
Last Month’s Rent: $1,200
Total to move in: $7,400
Minus $2,500 to real estate brokerage
You will credit $100-200/month towards the end purchase price also. So say at the end of the 2 year term the buyer qualifies for a loan and purchases the house.
You will credit $200 per month for 24 months towards the purchase price ($4,800) and also credit the $5,000 deposit as well.
The house sells for the agreed upon $100,000 and the buyer has $9,800 to use for closing costs/prepaids/down payment.
You pay the real estate commission ($6,000-$2,500 already paid=$3,500) and sell the house for a net near $83,000 (after closing costs/other fees)
More benefits for of a lease option compared to a straight rental:
• Large non-refundable down payment
• Tenant who wants to buy – care more for property (less maintenance)
• No monthly management fee
• Monthly income for 1-3 years or longer
• Larger monthly income vs. rental
• Sales contract in writing
More benefits of a lease option compared with a straight sale:
• Higher sales price compared to current market/buyer
• Large buyer pool
• Defer capital gains taxes while renting
And finally benefits of a lease option compared with seller financing:
• Close in 1-3 years vs up to 30 years of holding a note
• Evict a tenant who defaults vs foreclosing on them
• Pay only part of the sales commission until property closes
As we mentioned, we have many requests each day for this type of transaction. We have many people each day dreaming of owning their own home again. If you are interested in offering your property or finding a property with a lease option, give us a call. We look forward to hearing from you