What is a lease option?

For some of you who are new to real estate investing, or if you are a real estate agent, new to selling homes creatively, you might not know what a lease option is.

A lease option is a strategy that gives a real estate investor or home buyer the right to lease a seller's home and also the right to purchase the home during or before the end of the lease period. An option is a contract that gives its purchaser the right to exercise a privilege. In this case, it gives the lease option investor or the lease option buyer the right to purchase the seller's home during a contracted period of time.

A lease option in real estate is comprised of 3 parts. The lease, the option and the sales agreement (and also sometimes the memorandum of option).

These three agreements are best kept separate from one another. The lease of course, is the agreement between the owner and the tenant-buyer that specifies the terms of the rental period, how much the tenant will pay in rent, how long the lease is valid and the other details of living in a rental property.

The option, as I talked about above, is what guarantees the right to the investor or home buyer to purchase the seller's home. As long as the option is valid the seller cannot sell the home to anyone else.

The sales agreement defines the terms of the purchase. What the purchase price will be, whether the buyer will have an inspection and all of that other good stuff that goes with buying a home.

Lease options really aren't all that complex and they have been around for a very long time. They may have lost some favor during the recent mortgage boom because anyone who could fog a mirror could obtain a mortgage, so people didn't need lease options as much. But lease options are coming back strong now as lending standards have gotten so tight. If you are interested in learning more about lease options or lease option investing visit my website.

Tomorrow I'm going to talk about why a home seller would consider a lease option and what advantages there are to the home seller for selling their home that way.

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