Lease options are difficult to find and may not be your best option.
To begin with, there are two documents drawn up, a lease or rental agreement that outlines the use, monthly rent and responsibilities of the tenants / landlord.
The Option is a second document, Typically 18 months to 24 months. The option requires money down, this amount can be a few thousand dollars to 10% or 20% of the agreed purchase price. It may not be refundable, it depends upon the contract.
At the end of 18 or 24 months the Option must be exercise similar to a balloon note and the buyer either buys the property or loses their option money.
During the 18 / 24 months there may be additional money that can / is added to the Option funds. which are funds collected by the Seller above and beyond the monthly rental amount.
Some Lease Options, shift the property repairs and maintenance to the Option holder during the 18 to 24 months. Thus, if the air conditioner breaks down and needs to be replaced then the option holder replaces the air conditioning unit same as if they were an owner.
On the anniversary of the 18 or 24 month Option if the buyer (Option holder) can not obtain financing or chooses not to exercise their Option then. The property is on the fair open market to be sold to another buyer.
Up north, a contract for deed is more typically used, however, here it is not as popular.
Please keep in mind that at the start of the Option, you and the Seller may negotiate a future price. If that price is under current market in 18 to 24 months then good for you, if it is higher then current market conditions then you will over pay for the property and may encounter appraisal issues.
Lastly, as of 1/1/2014, the Dodd Frank law has stepped in and now requires Seller financing regulations to meet the current mortgage lending regulations and laws. This new law carries heavy fine penalties for the Seller if not complied with or the Seller was unaware of it (no excuse). This new law has had a surprise for many Investors that utilize Seller financing. This factor may also complicate your ability to find lease option properties.
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