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Capitalizing on the Re-Emergence of the Rental Market
By Lisa Wells
According to CNN, "homeowners trying to sell last month faced the biggest glut of homes on the market in about 16 years, as declining sales and growing problems in the mortgage market helped push home prices down for the 12th straight month."
The good news is if you are a rental property investor, now is the perfect time to pick up great deals in the market, as home prices continue to drop. And, if you are already holding existing rental properties, you have a great opportunity to return to 100% occupancy as so many people with "less than perfect" credit are returning to rentals after the sudden downturn of the sub-prime lending market.
With the incredible number of houses currently on the market -- more than 4.59 million - homeowners may wish to consider lease-purchase options when selling their property. Enacting a lease-purchase contract will allow the property owner to cover the cost of the mortgage while giving a potential homebuyer more time to save money for the house down-payment.
What is a lease-purchase contract?
Wikipedia.org defines a lease purchase contract (also known as Lease Option) as "a form of real estate purchase which combines elements of a traditional rental agreement with an exclusive option of right of first refusal to later purchase the home. These contracts are commonly used where a buyer wants to purchase a home, but due to credit issues would not qualify for a conventional mortgage and does not wish to, or would not qualify, for FHA or VA financing."
How does a lease-purchase contract work?
Usually when a landlord/seller wants to offer a lease-purchase option to a prospective renter, the tenant/buyer will agree to a lease period, during or after which the tenant/buyer has the exclusive right to purchase the home at a previously agreed-upon price. The landlord/seller will apply a percentage of the rent during this time period toward the purchase price of the home.
The good news for the landlord/seller is that if the tenant/buyer does not wish or is unable to purchase the house at the end of the lease term, the landlord can choose one of the following three options:
1.Extend the lease-purchase agreement with the current tenant,
2. Convert the lease purchase contract into a traditional rental agreement with the tenant, or
3. End the contract with the renter, who will then move out, allowing the landlord to seek other renters or buyers.
And, if the renter fails to pay the rent during the lease-purchase term as specified in the agreement, the landlord can include a clause in the contract to end the rental term immediately upon non-payment, which would then allow the landlord/seller to quickly seek a new renter or buyer for the property.
Capitalizing on the rental market
As new home sales continue to slow, and home prices are declining regardless of location due to the enormous supply of homes on the market, capitalizing on the rental market through a lease-purchase option makes sense for many homeowners, and it was the right solution for me too.
I am a landlord myself, and own several rental properties. I have a lease-purchase agreement in place with one of my tenants currently. The lease-purchase has allowed me to cover the cost of my mortgage and HOA fees [this property is a townhouse], and the renter has cheerfully walked away.