But as we`ve seen, from your point of view as an investor, the leasing options are brilliant – so you might decide that the juice is worth it. A rental option is a contract in which a landlord and tenant agree that the tenant can purchase the property at the end of a given period. The tenant pays a pre-option fee and an additional amount per month that goes towards the eventual down payment. If you decide not to buy the house at the end of the contract, you will lose your option fees as well as any money you spend on a down payment, but a seller cannot come after you because you decide not to follow the purchase. If you have any questions about the lease purchase, leasing option or real estate transaction, please contact us. A lease-option to purchase may be a solution for some potential home buyers, but it is not suitable for everyone. If you are not sure you can buy the building at the end of the rental period, you may be better served with a standard lease. In the meantime, take the time to work on your credit, save extra money and get a better form of your finances so you can hit when the time is right. Finally, it would be a waste to spend extra money on a rental option and above-market rent, without making significant progress towards real estate ownership. As with any contract, the exact terms of a rental option may vary.
A variant proposed by Rent-2-Buy offers tenants a six-year lease and gives them full responsibility for maintenance and repairs. Tenants will then receive a 6% share of each capital gain on an annual basis, which allows them to save for a security deposit while renting. Signing an “option to purchase” at the beginning of the lease gives tenants the right to purchase between the end of the third and sixth year at a price that is reduced by up to 36% of the capital gain (6% per year for six years). As a buyer, the question is… Why don`t you use a rental option? If you dream of homes but you don`t quite have the down payment or credit profile for them to become a reality, a credit-to-buy option is one of the options you should consider. The IRS has classified these transactions as storm sales and not as leases and specific rules may apply to the IRS at the time of taxation. A portion of the buyer`s rent can sometimes be classified as interest and would therefore be tax deductible. I would leave with $22,000 in cash: $12,000 rent and $10,000 from the sale of the option.
That`s not bad! They accept the leasing option, Fran and Fred can sleep easily, while other real estate prices are increasingly out of their grasp.