How Lease-To-Own Works As A Real Estate Investment
A real estate investment that is becoming more popular for investors is the lease-to-own market. The lease-to own market is a great way for people to invest in real estate.
Lease-to-own is similar to renting. Tenants make a monthly payment to the landlord for as long as the lease or contract states. However, part of that monthly payment goes toward the down payment for the property. At the end of the stated period in the contract, the tenant has the option of buying the property.
Lease-to-own is an option for those who have gone through foreclosures or who do not have a big enough down payment. It is also a less risky real estate investment. An investor already has a qualified buyer lined up and will still receive cash flow from the property until the lease is up.
It is important to have a contract drawn up between the tenant and yourself if you choose this type of investment. Some of the items to include in the contract are how much of the monthly payment will be credited towards the down payment, when the leasing period ends and the agreed upon purchase price.
The contract should also state what happens to the credited down payment if the tenant chooses not to buy the home when the time comes. The lease-to-own option is not an obligation to buy for the tenant. It is common for the tenant to forfeit the credited amount if he or she chooses not to buy.
There are many other advantages to this type of real estate investment. There is no commission that needs to be paid to a broker or agent when the sale is complete. You have cash coming in monthly and a good possibility of doubling your real estate investment in five years if the deal is structured correctly.
However, there are some pitfalls you need to be aware of, especially when it comes to negotiating other items in the contract. You and the tenant must decide who will pay for any taxes, insurance and any maintenance and repair costs during the time of the lease. Home inspections, closing costs and appraisals must also be addressed in case the tenant does decide to purchase the home.
Lease-to-own is another option for those who are looking to become a homeowner. It is key for you to do your research and have a screening process for possible tenants. Working out an agreement for this type of investment can be complicated, so it is important to seek advice when needed to protect and maximize your investment.
About the Author:
With over 20 years of experience in northern Nevada real estate, Greg Hughes is very knowledgeable about different real estate investments in Reno. His business offers clients a great way to invest in real estate. Sign up for Reno real estate investment advisor Greg Hughes' special report "7 Myths About Buying Foreclosures" on his website.
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