You can pursue various options, once you enter the real estate market. You can either flip your properties and book your profits or you can lease out your property. If you decide to lease out your property, then again you have a choice of encashing your profits at later date. Read on to gain an insight into real estate investing and lease options.
If the house that you have purchased does not appreciate enough for you to sell it immediately, then you could encourage your tenant to enter into a lease option. In such an agreement, the tenant will have the option to buy your property at the end of the lease term, which could normally be around one to three years. The purchase price of the property could be decided at the time of entering into the lease option agreement or at the end of the lease period. However, most tenants would rather decide on the price of the property at the time of entering into the agreement itself. Once your tenant agrees to the purchase price, and then he/she will have to give you a non-refundable deposit that you can retain, in case the tenant backtracks on the agreement to purchase the property at the determined time.
This agreement also binds you and you cannot sell your property to anyone else during the lease period. However, you can compensate for this clause by asking for a higher rental during the lease period. The tenant-turned-buyer has an option of selling your property to a third party during the lease period, subject to your approval. The optional deposit is not considered as a down payment for your property, though the rentals can be considered as installments against the value of the property. One advantage that you have is that your tenant would take good care of your property, since in the future, he/she would turn into actual owners of that property. Another advantage is that the option money, which the tenant deposits with you, would be forfeited, if the tenant fails to purchase the house at the end of the lease period. In case the tenant is unable to arrange the rest of the money at the end of the lease period, it will also become easier for you to evict the tenant.
The tenant too has several advantages to enter into a lease option agreement. If the tenant's credit history is poor and he/she does not qualify for a regular mortgage, then this type of an agreement can enable him/her to purchase a property at a future date. Your tenant also would not have to pay a substantial amount as down payment, which otherwise would have to be paid in case of a mortgage. The tenant also has the option not to buy the home at the end of the lease period, if the rest of the money does not materialize, although he/she would have to lick the wounds of losing the option money.
It is necessary to hire a worthwhile real estate attorney, who can explain the finer nuances of the lease option agreement and can keep your end safe, in case of any problem during or after the expiry of the lease period. A lease option is a good alternative to dispose your property at the current, subdued rates and can enhance your real estate investment at a future date.