Lease Options
The concept of the option is well-known in the financial world, and can be applied to shares, land or property. Having an option gives the holder the right to buy or sell something at an agreed price after an agreed period. The holder usually pays a premium to be granted this right, but is not obliged to exercise it.
Lease options on property are already popular in the US and other overseas markets.
So how does it work? A lease option agreement involves a tenant being given the option to buy a property at an agreed price at the end of a given rental period, usually three to six years. The tenant-buyer pays a consideration (Lease Option Fee) up front, of around at 3-7% of the market value of the property which is preferable to putting up a full deposit of 20-25% straight away. Fixed fees of anything ranging from £5000 upwards may be considered. In addition to the monthly rental a monthly lease option fee is payable. These "Lease Option Fees" go towards the purchase price of the property and are taken off the value of the property once transfer takes place.
Transfer/Completion is agreed any time, but is usually delayed 5-10 years or more, however, it may be completed sooner should the Tenant Buyer be in a position to do so.
This is a fully legally binding contract entered in to by both parties with the aid of qualified Solicitors and as it is solution orientated, it is a "win-win" solution for all concerned.
Commonly know as "Rent to Own", or "Rent to Buy", but unlike traditional schemes that relate to Affordable Housing and Part Buy, Part Rent Housing Association Incentives.
A lease option is a fantastic way for sellers to move on with their lives and goals and a fantastic way for buyers to get onto the property ladder.
Benefits to the Seller
The seller has access to a large pool of buyers (tenants that can't buy conventionally)
The seller can receive a higher rental income
The seller can receive more money overall
The seller does not pay any agent's commission
The seller has a better quality tenant (motivated by 'home' ownership)
The seller can get financial relief much sooner than selling conventionally
The seller has less voids and more certainty that the property is maintained
The seller can keep tax benefits of owning the property
The seller can avoid paying the lender redemption penalties
The seller can receive an income stream of positive cash flow
The seller will have peace of mind
Although it might not be possible to receive all of these benefits, the possibility of even one or more may be very important to the Seller.
Benefits to the Tenant Buyer
The buyer pays a low deposit
The buyer can delay completion costs
The buyer has the assurance of the pre-agreed purchase price
The buyer can 'try before they buy'
The buyer has the flexibility not to buy
The buyer can control the property using less money than if buying conventionally
The buyer effectively 'buys time' to save for the deposit, stamp duty and other completion costs
The buyer can move quickly (less than 2 weeks)
The buyer does not have to immediately qualify for a mortgage
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