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Thursday, September 08, 2005

Behold the Power of the Lease Option

If you are an investor that sells properties using lease optionsyou no-doubt understand why it can be an appealing avenue forthose that need rental history and/or rent credits to help achallenging credit file. But, would YOU consider buying aproperty using a lease option? You better!
There is a reason that some of the most successful real estateinvestors, including Donald Trump, use the lease option technique(ok, there are actually several reasons!).
Appreciation: One of the typical advantages of controlling aproperty using an option is that the buyer retains the right tocapture some, if not all, appreciation during the term. Thelonger the term, the greater the appreciation can be. In thesingle-family arena, where terms are usually 12-24 months, evenmoderate amounts of property appreciation can add up. For thebuyer, especially, every percentage point of appreciation counts.And, if you're nice enough to offer (or get) a 24-month term ina market increasing at 3% annually, $6,000 on a $100,000 propertyis significant.
Principle Pay Down: If an option is accompanied by a lease thepossibilities are greater for increased equity build up. Byapplying a portion of the monthly lease payment amount to thepurchase price of the property one has the opportunity to widenthe gap between the market value and the loan amount. Dependingon whether the monthly rent amount is inline with marketrates...this is free money! A 30-year amortized, $100,000 loanat 7% begins at approximately $82 per month of principlepayments. A $100 per month rent credit beats that, dollar fordollar, every month for almost 3 years!
No New Loan: Possibly the most noteworthy advantage of using alease option in the residential market is that when the Optioneebegins the purchase process no "new loan" is required. Theprerequisite for this may be working with the right and informedmortgage broker but is usually easily accomplished through arefinance. This can mean no additional out-of-pocket monies forclosing.
No Down Payment: I know what you're thinking, "I would neveroffer such a thing!" You don't have to. As a real estateinvestor rich in tools to find motivated sellers, you could getyour next home using this lease option technique with no moneydown. You don't have to tell the seller that an option fee maybe customary!
When you add it all up the numbers are hard to resist, so don'ttry! If you're in the market for a new (or new to you) home, useyour own strategy against you!

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