You’ve purchased a distressed property from the bank or another motivated seller. You’ve put either put your own hard work in (and sweat!) to fix the property up or invested in a solid general contractor and team to fix up the property. The home is gorgeous and ready for a wonderful family to move in. You want to sell fast you don’t want to list your property with a real estate agent because you’re concerned that your home will not stand out among the thousands of properties on the market and more importantly the agent might not have the time, money, or inclination to do anything special to market your home.
You’ve tried several marketing techniques and don’t seem to be getting any offers on your fully rehabbed property. Now what?
Consider using Lease Options
Short-term 30 to 90 day lease options are often used when rehabber investors complete their renovations and want to sell to a buyer who’s using FHA or Fannie Mae loans that require 90 day “seasoning” (title ownership of the property) prior to allowing a purchase contract to be signed. These investors will lock in their buyer quickly under contract, collect a non-refundable deposit, and will lease it until seasoning requirements have been met.
If seasoning is not an issue, but you are still having trouble selling the home via other methods, longer term (12-36 month) lease options can be a great way to sell the property. Understand however that you are immediately becoming a landlord for the lease period and responsible for upkeep and mortgage payments (if you have one).
Briefly, what is a lease option? A lease option is when you lease a property to a tenant/potential buyer with an option to buy it a future date for a price determined at the date of lease signing.
What’s great about lease options?
When you advertise lease options (“Rent to Own”), you will likely get a great response and have plenty of candidates to chose from You can (and should) get an up-front non-refundable payment for the option (suggestion: 3-5% of purchase price) which can be applied toward a future down payment for the home purchase. If the buyer changes his or her mind, you keep the payment for your troubles! You can charge a higher than normal monthly payment for rent and allocate a fixed monthly amount that can be used toward later purchase Unlike typical tenants, lease option buyers have pride of ownership and you can treat them like owners – in other words, have them handle their own home repairs, lawn care, pest control, etc.! You get tax deductions while you’re holding the property What are some concerns and risks of lease options?
Remember this person is – officially speaking – a tenant first and then a potential buyer – so what does this mean for you? Be sure to consult an attorney to ensure your lease option contracts are solid and cover all the key details Understand that it is possible that your tenant won’t become a buyer at the end of the lease term and you will need to find a new buyer or lease option candidate.
Being a landlord has numerous responsibilities – so be sure that you’ve considered whether this is a role you want to take on before pursuing lease options. It is an excellent option for selling your home quickly, particularly in a slower market.