By James A. Gage
As the real estate market evolves and
changes, there are fewer mortgage loans available and fewer
people who qualify as the factors for qualification become
more stringent. Having less than perfect credit puts, a
cramp on the ability to obtain the necessary financing for a
traditional home purchase, but that does not mean that fewer
people want to settle into a home and become a homeowner.
Real estate investors are learning that they can benefit
from this situation and make a profit by offering
nontraditional means of obtaining a home to those with
credit that is not well established or is less than
satisfactory to a mortgage lender.
Lease options, aka rent to own homes, are
a great source of income for the creative real estate
investor who wishes to make money while helping those who
cannot get into a home with their own credit to realize
their dreams of owning a home. Lease options work much like
a leasing a vehicle, only on larger terms. It benefits the
tenant buyer who cannot obtain a mortgage to purchase the
home by offering them the opportunity to build their credit
and make the choice to purchase later while also assisting
the investor by maintaining an additional source of income
for the duration of the lease period.
When a car is leased, there is a
nonrefundable deposit paid to the dealership that equals a
percentage of the car's value. This is also done in a lease
purchase or rent to own agreement and is referred to as the
Nonrefundable Option Payment, securing the tenant buyer's
ability to choose whether or not to purchase the home at the
end of the lease contract agreement. As with a vehicle,
there is a lease contract signed in which the tenant buyer
agrees to make a payment of a certain amount each month for
a predetermined length of time, usually 12 months. This can
be done in a manner that includes payments to be credited
toward the purchase of the house or not, depending on how
you want to set up the lease.
Finally, at the end of a car lease, the
driver has the option to finance the remainder of the
"balloon payment" owed on the vehicle in order to purchase
it or to turn it back over to the dealership. In real
estate, when working with a rent to own or lease option
contract, this is referred to as the Option to Purchase
contract, in which the tenant is given exclusive rights to
purchase the real estate property without you offering it to
the highest bidder first without obligating them to purchase
when the lease is up.
If the option contract was signed so that
the payments made during the lease period were credited
toward the purchase of the home, the tenant buyer will need
to obtain a mortgage loan equivalent to the remainder of the
purchase price originally agreed upon. If there were no
rental credits, the tenant buyer will need to obtain the
entire purchase amount.
Lease options and rent to own housing are
excellent ways for a real estate investor to make a lot of
money because there are three different sources of money
coming in, all of which add up to a sum greater than the
original investment by far. You put little money into the
purchase, and in exchange, you receive an up-front payment,
monthly installments, and finally a purchase payment equal
to an amount greater than you paid. I structure all of my
deals so I get paid at the beginning of the deal, the middle
of the deal, and at the end of the deal – what more could an
investor want !
"You are who you are and where you are because of what you
have put into your mind."
For more information or pricing please do not hesitate to
call or e-mail. I can be reached at (508) 595-9567.