Real Estate Lease Option

What is a rental option? Typically this is when person rentals a property, and they have an option on the property. The option they have gives them the right to buy, but not the duty to purchase to purchase the property. The rental and the option can be for the same term, around 1-5 years, but closer to the 2-3 twelvemonth mark. If the rental is for a longer time period there may be commissariat for rent additions along the way.

If you are buying a rental option place you are probably in a place where the Banks will not let you to acquire a conventional mortgage. By getting in on the right trade for you, you could by a place while working on your finances instead of having to wait. You will then also be able to begin to construct equity immediately.

Here is an illustration of a trade we did in Edmonton. Place is for sale by owner, and the place is vacant. I called the telephone figure on the mark and establish out some details. The place was listed for $360K and now they wanted $315K. The ground they were selling was the householders had a house built for themselves and already moved in, and did not desire to have got two debt services. This is also why the place was vacant, they did not desire to acquire into the rental market.

We approached them with this offer:

Buyer sets up $25K as option money to buy the place outright in 3 years. Buyer holds to pay debt service and taxations and keep the property. The marketer desires more than than just the monthly debt service so we give them an further $100 per month.

Benefits for the seller, the place is sold at the terms they could dwell with. Their debt service is being paid, we are not tenants, so they make not have got to keep the property. And the marketer walks away with enormous peace of mind.

I could have got moved in, but as an investor I instead sold an option on this place with a rental to another person.

We agreed on $35K option money, and we collected $300 over and above all disbursals including debt service.

At the end of the option we will exert our right to buy, and purchase the property. At the same clip our purchasers will exert their right to purchase and purchase the place from us.

In entire over three old age this is what we will make:

35k-25k=10k this is the difference between the two options

300-100=200per calendar month for 36 calendar months =7,200 the difference in the rents being paid.

(315-25)subtracted from (360-35)= 35k

Total= $52,200 over three years.

Yes, this won't be exact, there will be some shutting costs, and the mortgages will be paid down some as well, these two points will come up close to counterbalancing each other out.

Now if you did this with an investor you each make half, do four in that first twelvemonth and you made an easy $100K for you and your investor, not bad for portion clip work.