As market values continue to decline across America, the traditional way of selling real estate is making it hard for sellers to accomplish their goals.

Home values have decreased from 25-50% since the 2005 boom.

Here in Phoenix, bank owned properties make up to 50% or more of the housing market on the Arizona Multiple Listing Service. Many sellers, including new home builders, have to compete with low selling foreclosed homes available to Realtors and their buyers.

One solution is a lease to purchase....

 

· The typical lease option is for 24 months.

· The leasee (aka, tenant or buyer) gives a small down payment (from 2-5% of the sales price) to the seller or Title Company.

· Leasee then lives in home, making monthly payments to seller, until Leasee is able to exercise his/her option to purchase the house at the agreed upon price via the purchase contract.

Although mortgage rates continue to be at their lowest levels in years, lending guidelines continue to make it harder for people to obtain a traditional home mortgage. One must prove their income, savings, and job history via full documentation loans and have acceptable credit history.  Also, buyers must put a down payment from 3.5% up to 20% on a home purchase.

Since property values have declined over this past year, many people are forced to use this option, to sell their house, because they have no money to pay a realtor’s commission. The lease option business will continue to grow as people have been foreclosed on and/or have lost their jobs.

Now, is a perfect storm, for investors.

My name is Harry F. D’Elia III. I have been performing lease options for the last six years. I have put together over one hundred of these types of contracts between a seller and lease option candidate. I always advise that it must be a Win-Win for both sides in order to obtain success.

One reason for my high rate of success is because I aid the lease option candidate to get in position to exercise his/her option in the given time period. I work closely with Praxis Credit Consulting. This firm is able to rebuild one’s credit rating through education, support and clear expectations to be performed by the lease option candidate.

For the lease option candidate with bad credit, and no money for a 20% down payment, a lease option is a great solution. By making monthly payments on time, plus clearing up one’s credit, will aid in rebuilding credit rating in order to meet lending guidelines. However, the Lease Option does come with risks;

Risks

There are risks on both sides of the coin such as, will the home appraise for the agreed upon purchase price set by buyer and seller? If it does not appraise, then buyer and seller will need to re-negotiate. Another risk, there are no guarantees that the leasee can obtain a loan program that fits their profile needs.  

There are many pluses for Sellers

1. Able to obtain above asking rental price along with a nonrefundable down payment.  

2. Take the tax deductions on the property.

3. Avoid realtor’s commission if leasee exercises his/her option.

4. If the leasee does not exercise the option, the seller still wins because the property has appreciated and the leasee has paid down the seller’s mortgage.

Everything is negotiable in real estate. Having a solid lease option contract that spells out every detail for both the seller and buyer is the key to a successful lease option. Real Estate and Beyond has developed a solid lease option contract that ties both the rental contract and purchase contract together to have a legally binding contract.

Setting up Win-Win Scenario

I always advise my investors to treat people the way they want people to treat them. Respect and honor goes a long way.  What if the seller would send the lease option candidate a $100 gift certificate from Wal-Mart in a thank you note? I believe this act of kindness will go a long way. I have developed checklists for both sides of the transaction to be successful at creating a healthy Leasor/Leasee relationship.