First let me give you an idea of what a lease-option contract is.
This is an agreement between a buyer and a seller that allows the buyer to lock in the future purchase price, lease the property from the seller for a stated period of time, save money for a down payment and buy the property in the future at the previously agreed upon price and terms.
The buyer normally can exercise his/her option at anytime within the stated period.
Once the period of time expires, however, the buyer losses all rights to the property if the option has not been exercised.
As you can see, this can be a win-win for both the buyer and the seller, especially when the seller is having trouble selling the property in the current market.
Here's the basics of how a lease option would work.
- Two parties agree on a purchase price - They agree on the terms of the lease, including the lease payments and the term of the lease.
The seller often times will allow a portion of the lease payment to be applied towards the down payment.
- They agree upon terms regarding the exercise of the option, such as the escrow period and financing.
- They determine who will pay for inspections, repairs and warranties when the purchase occurs.
- They obtain a lease-option agreement and complete, including all the details mentioned.
- The transaction is handled as a lease until both parties are ready to exercise the option.
- The option is exercised in writing.
- They complete the transaction through escrow or an attorney, depending upon your state.
Please understand this is just an overview of a lease-option that I am providing to all of you for educational purposes only.
If you decide to use such a contract, you should get professional advice on the elements and how to correctly write one, possibly even have an attorney review it before signing.
The advantage to you the Probate purchaser is it can allow you to control a property for 2, 3 or maybe even 5 years with very little of your own money and then purchase the property at your previously agreed upon price.
This is called "exercising your option.
" The advantage for the estate is that they can begin getting some revenue immediately for a property they may have previously been unable to sell.
It's kind of like the "somethin's better than nothin" idea.
A couple more things ...
You may be asked to put up option money up front for the privilege of having the option to buy.
Also, all option money and lease payments are non-refundable if you elect not to exercise the option.
So there are the basics of the lease option agreement.
As you may have picked up, there is one huge advantage for you if you to choose to use this method.
If the market goes up during the option period, you can make a profit by exercising at the agreed upon option price if the option price is below the new market value.
Here's an example: if the option price is $200,000 and the estimated market value of the house is now $225,000, you will have an instant equity of $25,000 if you exercise your option.
If the market goes down, you can walk away at the end of the term and only be out your lease payments and any option deposit you may have made.
Can you see how this can be a great tool when negotiating with Probate sellers? If they haven't been able to sell the deceased's property at the price they think it's worth today, you may be able to use this method to get them close to what they are asking, and if the market appreciates say over the next 3-5 years, you can make a handsome profit.
Again if you decide to use this strategy, please make sure you get more information than I have provided in this one short article.
I'm just trying to give you different ideas as to how you make money in this lucrative probate market.