Advantages And Disadvantages Of Lease Option Real Estate Investing
Lease option real estate investing is a creative way to get started in real estate investing. The biggest advantage of this investing method is “control”. It basically gives the investor the right to possess– be in control of– and profit from a property without owning it.
A lease option contract is a combination of two documents. The lease part is where the owner agrees to let you lease their property while you pay them rent for a stated period of time. During the lease period the owner can not raise the rent, rent it to anyone else, or sell the property to anyone else.
The option part represents the right you purchased to buy the property in the future for a specific price. If you decide to exercise your option to buy, the owner has to sell it to you at the negotiated price. The option part of the contract obligates the seller to sell to you during the option period- but it does not obligate you to buy. You are only obligated to make rental payments as agreed during the lease period.
When the lease option contract is written and structured properly, it can provide tremendous benefits and advantages to the investor. If the lease option includes the “right to sub-lease” the investor can generate a positive cash flow by renting the property to a tenant for the duration of his lease, or lease option the property to a tenant-buyer for positive cash flow and future profits. If the lease option includes a “right of assignment” the investor could assign the contract to another buyer for a quick profit.
Lease option real estate investing, is a flexible, low risk, highly leveraged method of investing that can be implemented with little to no money.
High Leverage
It is highly leveraged because you are able to gain control of a property and profit from it now–even though you don’t own it yet. The fact that you don’t own it also limits your personal responsibility and liability. Only if you decide to purchase the property by exercising your “option to buy” would you take title to the property.
Little to no money
The investor’s cost to implement a lease option agreement with the owner requires little to no money out of pocket money because it is entirely negotiable between investor and owner. There are a variety of ways the option fee can be structured such as an installment plan, balloon payment or other agreeable arrangement between both parties. The option fee can even be as little as $1.00. In order to secure the property for purchase at a later date, tenant-buyers typically pay a non-refundable option fee of approximately 2%-5% of the negotiated purchase to the seller. Depending on how the lease option agreement is written and structured, the investor could possibly use the tenant-buyer’s option fee money to pay any option fee owed to the owner.
Flexible
It is a flexible method of real estate investing because terms of the agreement like payment amounts, payment dates, installments, interest rate, interest only payment, balloon payments, purchase price and other terms are all negotiated between seller and buyer. Responsibilities of both parties are also negotiable. For instance, if the investor doesn’t want to act in the capacity of a landlord, he could specify in the lease option agreement that tenant-buyer will be responsible for all minor maintenance and repairs and the original seller will remain responsible for any major repairs.
Financially Low Risk
It is low risk financially. If the property fails to go up enough in value to make a profit, you have the purchased the right to change your mind and let the “option to buy” expire. Even if your tenant-buyer decides not to buy the property, you have profited by a positive monthly cash flow from the tenant-buyer’s rent payments and upfront non-refundable option fee.
Let’s look at an example of a lease with option to buy structured in a way that the investor profits in 3 separate phases of the investment.
Profit #1 non-refundable option fee
Future sales price negotiated with the current owner is $125,000 with an option fee of 2% of the sales price. Option Fee you owe the owner is $2,500. The future sales price you set for your tenant-buyer is $155,000 and the option fee is 4% of the sales price. Option fee the tenant-buyer owes you is $6,200. You collect $6,200 from tenant-buyer and pay $2,500 to the owner and your profit = $3,700
Profit #2 cash flow from monthly rental payments
The Monthly rental payment you negotiated with the owner is $1,000. You set the monthly payment at $1,250 per month for your tenant-buyer. Each month you collect $1,250 from your tenant-buyer and pay the owner $1,000 each month. Your profit is $250 monthly positive cash flow during the lease period.
Profit #3 is set up when the lease option contract is initially written
The difference in the negotiated future purchase price with the owner and the future purchase price set for your tenant-buyer. Let’s say the property goes up in value to appraise for at least $155,000. Your tenant-buyer decides to exercise their option to buy. You buy the property from the owner at $125,000 and then sell it to your tenant-buyer for $155,000. $155,000 – the $125,000 you pay to the owner = $30,000 profit.
Of course the key to making lease option real estate investing work, is finding motivated sellers and buyers. Finding these motivated sellers and buyers shouldn’t be difficult. The continuing down turn in the real estate market has created a large number of sellers who can’t sell their property and also buyers who can’t get financing to buy. The seller could possibly get a fair offer to be paid in the future by selling their property to a real estate investor on a lease option basis. A potential tenant-buyer could obtain home ownership without having to qualify through traditional home loan guidelines.
One disadvantage of lease option real estate investing involves the tenant or tenant-buyer possibly defaulting on monthly rental payments. This would make it necessary for the investor to come up with money out of pocket to pay the owner and possibly have to proceed with eviction process. However, there are certain provisions and clauses that can be written into the lease option to deter buyers from defaulting on payments.
If the investor fails to do “due diligence” before entering into a lease option agreement, he could end up with a property that is unmarketable. There could be a number of liens on it, issues involving ownership of the property or it might be in foreclosure. By diligently performing research before entering into a lease option agreement, the investor can avoid these mistakes. A few things the investor could do is– perform background and credit checks on both the seller and buyer, search public records in reference to ownership and property status, or do a title search.
Despite the few disadvantages, lease option real estate investing continues to be an excellent way to invest in real estate with little to no money and low financial risks. It also remains to be an excellent way to gain control of a property you don’t own and create positive cash flow and profits on flexible terms.
Bottom line, the secret to success in today’s challenging real estate investing market is to use only the best creative ideas, proven tools and strategies that have been successfully used by other investors to generate cash flow and profit from today’s real estate market. The more you understand and apply now, the more you will profit from today’s financial crisis.
The Importance Of Employing A Knowledgeable Real Estate Agent
If you are planning to invest in Atlanta then before you make that final plunge you must get in touch with Andrew Doyle in Atlanta. He is not just a realtor but he is also an investor so he can see things from your point of view. As an investor, he looks to invest in properties that will give him good returns. Therefore, he studies the different markets well and is aware of all the projects that are available and the market conditions prevalent. This is the same knowledge that he is willing to share with his clients so that they too can gain from their investment.
A Deep Knowledge of the Market Is Required
There are plenty of ATL Condos For Sale In Atlanta GA, or family residences or town houses, available in different localities. To choose the one that will work for you is not that easy. You need to know the area well or you need an agent who is familiar with the area so he can guide you. A seller too will need the services of a well experienced agent to help sell his property at the best possible price. Market conditions change rapidly and unless you study it regularly, you will not be able to keep up with it, which could lead to some wrong decisions being made. There are many important facts that need to be discussed at length and understood before the final decision is made.
Great Deals Available
Thanks to the crash in the market a few years ago, many buyers suffered losses. But now the markets seem to be recovering and there are some very good, never-lived-in properties available at Aqua condos in Atlanta. The views offered may not be the greatest but the location, finish and facilities provided for the building is excellent. It may not be possible to get such a good deal anymore so it is a good idea to consider investing in this building.
Demand for Condos Is On The Rise
Now that the real estate market is looking up, the demand for Midtown Atlanta Condos For Sale or sale has increased. With the fantastic facilities provided and the convenient location in terms of work, more people are moving into these buildings. Easy accessibility to schools, museums and other places of cultural interest and for adults the exciting night life and shopping experience only adds to the attraction. Eating out too is a pleasure thanks to the wide choice available.
[Top]Chennai Real Estate Market Boom And Investing Advantages
There are been a fast growth in the real estate in India, that has uplifted many part of the country such as Bengaluru, Cochin, Hyderabad, and Chennai. The value of the properties in these areas has touched a far unimaginable price. Out of all these cities, Chennai is the one not to be missed.
In Chennai, every real estate sector such as residential, retail, and commercial has a huge demand. In residential sector, both individual houses as well as apartments are preferred. And in commercial sector, SEZ’s are on the rise. And due to this factor, it is emerging fast in laying a strong real estate market, in the whole country and facing an upward trend.
The prices of Chennai Real estate varies depending on the factors like building construction type, location, amenities, accessibility, and so on.
Reasons for Phenomenal Growth:
With this uptrend scale, everyone might be left wondering why the Chennai property is worth. Listed below are some of the few reasons.
1.The city is properly connected to the other countries and satellite cities
2.The city has some of the credible educational institutions in its kitty
3.The city offers a world class healthcare and other medical services and facilities
4.The city has some high-tech communication channels equipped well, for e.g. High speed internet
5.Growth of SEZ’s, IT, and ITES
6.High level income from the IT and ITES division
7.Non residing Indians, who turn back to Chennai for an enhanced opportunities both personally and
professionally
8.The home loan options which are flexible
During the recession period, there was a small downfall in the Chennai’s real estate market. With the situation getting better, the demand has risen again. The expensive areas for getting residential apartments in Chennai are Mylapore, Adayar, RA Puram, Besant Nagar, Annamalaipuram, and Egmore. These are considerably closer to the city area. Apart from this, the other farther from city places such as Perungalathur, vanderloo, and Shozinganalur are also growing rapidly. GST road and OMR road is coming with a lot of residential projects with lots amenities.
In Parallel the commercial real estate market is showing an equal growth. A lot of new projects are under construction, due to the space demand created by the IT companies. The evergreen place preferences for the commercial properties in Chennai are Cathedral Road, Lloyds Road, Nungambakkam, and Anna Salai. If you are a factory or a heavy duty factory owner then you will be ideally looking for places in Ambattur and Guindy. The IT sector has its offices mostly in Old Mahabalipuram, Tharamani, and Tambaram.
Chennai real estate marketers are looking out for every avenue to attract the companies. They segregate the companies in different levels and offer intricate designs and other amenity which is suits the specific sector.Those differences are:
.Grade A – Specifically for Multinational ITES and IT firms.
.Grade B and C – Specifically for domestic and local companies.
People, who invest in Chennai real estate market, can expect a great amount of return, as it has grown in 200 %.
[Top]Joseph Kavana Is the Chief Executive Officer of Miami-Based K Group Holdings
Joseph Kavana was born in Uruguay in 1949 and has been residing in Miami since 1980. He has worked as an active developer and investor for more than twenty years in the real estate industry. Joseph Kavana is now serving as Chairman and CEO of K-Group Holdings, Inc., a leading real estate development company involved in various prestigious projects. For the past 25 years, K Group Holdings, Inc. has successfully evolved as an active investor and manager of strategically-selected companies throughout the world. K Group International Development, a division of K Group Holdings, is a diversified real estate investment and development company working in the United States and Latin America. The company is actively involved in the development of a project known as Yoo Punta Del Este in Uruguay and Yoo Nordelta in Argentina.
From 1980 to 2000, Joseph Kavana has served as Chairman of the Board and CEO of Sagaz Industries, Inc. The company manufactured and distributed soft goods products for the automotive industry. In a short period of time, under his expert leadership, the company became leader in the automotive aftermarket. In 2000, he sold the company to Pennzoil Quaker-State. He then created K Group Holdings Inc, driving force behind Metropica, a premier mixed use development in the heart of Sunrise, Florida.
Joseph Kavana was also involved in various land development deals such as Jacaranda West (Plantation, Florida) and Chapel Trail (Pembroke Pines, Florida), which represented more than 400 acres of land. Recently, he has made significant contributions in Sunrise, Florida where in 1994/95; he purchased 65 acres of land through Sawgrass Property Investments and Sawgrass 17 Acres Partnership. Joseph Kavana has an extensive knowledge in various asset classes including land development, commercial/retail, multi-family as well as industrial. Mr. Kavana is also active in several other real estate and development projects that spread across various properties and establishments. Check out the complete details about achievements of Mr. Kavana, by browsing through www.kgroupholdings.com.
[Top]Fort Laudedale Real Estate Prices Rise But Fort Lauderdale Realtor Sees Bumps Ahead
Fort Lauderdale area real estate prices are on a huge upswing and you can see the news just about everywhere you look. From the Real Estate section of the local Fort Lauderdale newspaper that for year has spent many pages on gloom and doom, to the signs in front of local real estate offices that are covered with positive accolades about the local real estate market. It appears that on many levels the bottom has passed and happy days are here again for the sellers of Ft Lauderdale Real Estate… but maybe, not so fast!
Just like there was a perfect storm of events that burst the bubble on the real estate boom. There appears to be some events that have fueled a quick reversal in prices that simply may not last. I want to get to the point of this Fort Lauderdale Real Estate article before I even explain my theory further.
I don’t expect the exuberant price increases to continue, I expect to see a leveling off and a return to a stable market!
It’s a great time to be a buyer of South Florida Real Estate, and if you are a buyer its time to come to grips with the fact that you missed the bottom. Now maybe the time to start working closely with a Fort Lauderdale Realtor to find a great deal before the next rise in prices, prices you out of your dream home.
Now that we got right to the point, let’s talk about why the quick upswing in prices and somethings that could slow down the dramatic shift. To begin I need to quote Gary Keller, not sure of it was original but it was from him that I heard it, ” the pendulum swings fastest at the bottom”, and that has certainly happened. Large hedge fund investors in the Fort Lauderdale market have been buying property at a feverish pace, and often paying over market value driving prices up? The rumors are they are not renting these homes as quickly as they thought and are slowing down on these purchases. I do not think this will hurt the market in itself as there are many smaller investors ready to buy all the distressed homes that come to market and bidding wars will remain a norm.
Fort Lauderdale Real Estate force #2, the cranes are moving again over the City of Fort Lauderdale. You still can’t sell a condo or a home for what it will cost to build but the gap is closing quickly. In Fort Lauderdale where vacant land is in short supply we have seen the return of the individual home owners willing to build. There are people building their personal dream homes at all levels of the local real Estate market. In addition 1000’s of new rental properties are currently under construction in the city. These can slow down the market by causing a drop in rents, forcing smaller investors to drop their sale prices and creating a chain reaction to help level the playing field. Certainly this is not a good or bad thing; it is just another one of the forces facing our market.
Last but not least in Broward County we still have approximately 40,000 properties at some point of foreclosure. Based on some new laws the banks have had to regroup in order to be successful in their foreclosure actions. But as they do come back to court and these actions do start to move forward, and property does become available it will certainly cause some downward pressure on pricing.
As I see it, great days are ahead for the Fort Lauderdale Real Estate market, but at this point is was time for a little reality check! This is not the time to allow a market very short on inventory to cause you to become a reactive buyer. Its time to identify what you are looking for and wait for the perfect home to come your way.It is thetime to be diligent and watch prices and interest rates so you can make a decision that is right for you and your family.
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