Lease Option Agreements

The buyer asks for bank financing and pays the seller in full at the end of the life. While the option money generally does not apply to the down payment, part of the monthly rental goes towards the purchase price. For this reason, the monthly rent is generally higher than the fair rental value of the market. As a buyer, the question is… Why don`t you use a rental option? 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. The money in the option is rarely refundable and, while no one else can buy the property during the option period, the buyer can sell the option to someone else. The buyer is not obliged to buy the property; If they do not exercise the option and buy the property at the end of the option, it simply expires. A lease purchase is another variant of the same theme with some slight differences. The buyer (tenant) pays the seller (the owner) the option money for the subsequent right of sale, and he accepts a purchase price – often or slightly higher than the current market value. For the duration of the option, the buyer agrees to lease the property by the seller for a predetermined rental amount. Owners of hard-to-sell real estate generally offer leases. They sell it to a conventional buyer who would pay the seller a cash payment if the property was a plum and easy to sell.

Sellers usually get market value at current prices and discharge out of pocket for payment of the mortgage on an empty property for the lifetime. The terms of the lease are negotiable, but again the typical duration is usually 1-3 years. You should understand all the terms of the agreement, including the length of the agreement and the amount of the option tax, which can be any amount, but usually varies from a few hundred dollars to 20 percent of the value of the home. As a rule, you pay market rent, with part of your rent going towards a future deposit on the property. You should advise a real estate lawyer who has experience with these agreements to verify the contract before signing it. The duration of the option can be any period on which the owner and owner agree, but is usually one to three years. The lease also sets the purchase price of the property at the beginning of the lease or how that price is determined at the end of the option.