What is a Lease Option?
A Lease Option is a method by which you can gain "control" over property without actually having direct ownership. It is a method often designed to help a person or family get into a home within the near future. It also allows for the building of a substantial down payment over the period of the lease contract.
What is the difference from a Lease Option and a normal Rental?
They both use the same type of rental contract, but a lease option also has an additional contract allowing this tenant to have the sole right to buy the home for a specific period of time.
Will I pay more on a Lease Option than a normal Rental?
Yes. The additional amount paid monthly is usually the minimum that will be applied toward the purchase of the home. This is known as a "rent credit".
An example is that rents may be raised by $200 per month and this is the least that will be applied toward the rental credit. (In many cases the rental credit will be even higher.)
Why is it so difficult to escape the "rent trap"?
Many people have become very accustomed to making rental payments and thereby never getting any benefits for doing so. Becoming a home owner is still the American Dream. In most areas of the U.S. a full mortgage payment is higher than a rental payment and this often scares people.
A sacrifice is often needed to take the step away from the "rental trap".
What if I am not ready to make this sacrifice?
If you are not ready to take the next step to home ownership then it is best if you stay a renter until you are ready. And as a Nevada Realtor I can assist you in your rental needs.
If I wait what will happen?
Even though the current real estate industry is fluctuating, overall real estate prices go up. Thus, one can expect that in the future you will be paying more for a home than you would today.
How much cash do I need to escape this "rent trap"?
That depends. If you are wanting to buy then the average is 10% down or more depending upon how your credit is.
In our Lease Option program in Las Vegas the average is at 2% or less and credit is not an issue at all.
What is this "Option Fee"?
The option fee is the amount you put down to secure the rights to buy the home in the future. In our program the full amount will be applied toward the purchase of the home.
I have a dog or cat, is that okay?
Pets are welcomed (pit bulls and Rottweiler's can be an exception). An additional pet fee will often be assessed. This pet fee is usually also applied toward your down payment.
How much will I have in credits to buy this home?
This depends on the home. The usual can be easily calculated by:
Option Fee + (number of months in home) * (rent credit)
How long are your leases?
The normal lease is two or more years for the initial term. Additional time can be added as needed for you to get your credit in order.
Can I put more money down?
Yes. If this is part of the option fee then it will be fully applied toward the purchase. It is not always recommended because if you decide not to purchase you will lose these additional monies.
Can I lower my monthly payment by putting more money down?
Yes. For every $100 less you want to spend monthly you must put the same amount down in the option fee.
Ex.: On a 1 year option you can put $1,200 more in your option fee and this will reduce your monthly by $100 for the first year. The rental credit would also be reduced but the additional $1,200 would be on your option fee and fully applied.
What is the price at the end of the lease?
There are two standard methods of operations that we use.
1.) By at the appraised value at the time the option is executed; or
2.) Setting a price that is agreeable to both parties at the start of the lease period.
What are the benefits of each of the above pricing?
1.) if you assume the prices may go down or stay the same as today then it may be best to go off the appraised value and thus making the best deal today.
2.) If you assume that prices may go up in the future then setting the price at a conservative value will give you equity in the future.
What happens if I go off of the set price and it doesn't appraise for that amount in the future?
This is one of our most frequent questions we come across. There are three possible solutions.
1.) Renegotiate with the Owner for a lower price. The Seller may or may not do a price change, though.
2.) Renegotiate more time until the home does appraise for that price.
3.) Owner/Seller Financing at the agreed upon terms.
4.) Pay the cash difference yourself.
5.) Lastly, consider moving on to another home. I don't recommend this as you would lose your credits and option payment.
What if the home appraises for higher than the agreed set price?
That will be equity in the home and that will be yours to keep. Unless it was noted differently in the contract you will be buying a home that has automatic equity.
What about financing? Will your owners help with any of the financing?
Many of the owners may consider doing Seller Financing. That is dependent upon the owner, your payment history, and the market conditions at the time you are buying.
Can you guarantee me that I can get outside financing from a bank?
No. Your financing will be completely dependent upon your credit status, job history, and ability to make the monthly payments. It is strongly suggested that you begin working on improving your credit by paying bills on time, removing old derogatory items from your credit report, and establishing new lines of good credit.
Are you saying that I have go get my own financing at the end of the lease?
Yes. This is why you need to start on Credit Repair from the first day you move into the home.
What if I decide not to buy the home?
You will lose all of the rental credit and the option fee. These monies are solely for use toward the purchase of the home. If you fail to buy or decide not to buy, then these funds are non-
Will my mortgage payment be higher than my monthly payment?
In many cases the answer could be Yes. You will then be making a full mortgage payment depending upon your credit scores, current interest rates, etc. Also, you will now be responsible for taxes, insurance and any local HOA (Home Owner's Association) dues. And if the home is newer you may have payments called a SID or LID.
What about tax benefits?
Only the owner receives tax benefits. Thus, during the leasing period you don't get the tax benefits. When you buy (or go through seller financing) you will then receive these benefits. You should consult at accountant or CPA for those benefits as well as possibly homesteading benefits.
Can the owner sell the property that I am in during the lease option period?
The correct answer to that question is actually Yes. The owner can sell the property. However, the new owner must honor the contract the original owner had with you. The same would be true with any rental property. If you were an investor and bought an 8 unit apartment complex you have to honor all of those agreements. The same is true in this scenario.
What are my responsibilities during the lease?
You will be required to make small (sometimes all) the maintenance on the property after your first 30 days. In many cases you should opt for a Home Warranty and thus you are only required to pay a small deductible.
What if I just want to rent. Can I just do a rental?
No. We do not do rentals through Trident Investments. Our purpose to aid people and families to realize the American Dream of home ownership.
Can I just buy one of your homes?
Maybe. That depends on the owner. Every deal and situation is different. Sometimes the owner is seeking some cash flow and others are okay with letting the home go and to purchase another investment.
What are my chances of succeeding?
Less than 20%. The main reason that most people fail is due to the lack of motivation to work on their credit. If you don't work on your credit then there is no way you will qualify for a loan in the future. We will provide you with the tools you are going to need, it is up to you to actually use these tools.