Lease Options Sacramento CA
“Lease options are like guns. You either love them or hate them,” William J. Archambault, Jr. of The Real Estate Institute said. “You either see them as a great tool for good, or a great tool for evil."
Controversy about lease options has developed as the strategy has increased in popularity with real estate investors in recent years. The strategy has grown popular in the last 15 years or so, John T. Reed, a publisher of real estate investment books and former real estate investor, said.
In a lease option, the property owner leases the property to a tenant with an option to purchase at or before a set date. The purchase price is usually set up front, and the tenant often makes an up front payment as a sort of down payment.
A rental rate is typically set at least a few hundred dollars higher than the fair market rent, and the excess amount is often credited toward the down payment if the tenant exercises the option to purchase.
Tenants are willing to pay higher rents “as consideration for the option to purchase,” Diana Bartolotta, a real estate investment attorney from Connecticut, said.
Recently, lease options have received negative press as a tool for greedy investors to defraud unsophisticated tenants of their money and, in some preforeclosure or foreclosure scenarios, property. Some of these cases are going to court and could result in new legislation governing lease options.
Lease option evolution
Lease options originated as a tool to help homeowners move property they had difficulty selling. This opened up the buyer pool to renters who were not quite ready to buy.
“It allows a little bit more flexibility for...a property that [a seller] couldn’t flip, or is staying on the market too long,” Bartolotta said. “This will generate cash flow during the process of selling it.”
“The best reason for a seller to get involved with a lease option is that he’s got a prepayment penalty and he needs to wait...to get rid of the prepayment penalty,” Archambault said.
Real estate investors soon saw the benefits of selling through lease options, which allowed them to get above average rent, sell at or above market prices and avoid commissions.
Some investors began to lease option property from homeowners who needed to sell quickly. The investor could then re-lease option the property to another party for a profit.
Gurus quickly began selling seminars and educational materials to teach investors to profit from lease options. Many programs were designed to find the “greater fool”—someone who knows less about the value of their asset than the investor.
Preforeclosure programs are a recent development; investors identify distressed homeowners, purchase the property and lease the property back to the original homeowner with an option to purchase.
Pick-your-own-home programs have also arisen recently. Tenants identify the home they wish to purchase, and then the program matches them with an investor, who purchases the home...
Dates: 8/24/2014 - 8/27/2014