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Important Aspects on Lease Option in Real Estate Investment|Things to Consider on Lease Option in Real Estate Markets|Getting to Know The Essentials on Lease Option in Real Estate Investing Once again rental or better known as lease option is starting to get more attention in the real estate business. Due to the market decline of real estate ownership in recent years, leasing has become a trending option and seems to be working potentially in areas where this form of option never worked before. It is imperative that any potential investor interested into lease option must first understand some vital considerations in leasing which could help a lot in making a better decision to rent or not. One must understand that lease option carries the right to rent and an option contract to buy the rented property by the rentee at an agreed price and at a specified expiration date. There are also many alternative strategies in lease options where an investor can buy a property and have it rented to an end-buyer or the investor can offer a lease option from a real estate agent and offer the property for re-leasing to the buyer. As an investor, you get to profit a lot from this lease option strategy, the gains of which can be sourced out from the following: the rent differential which is paid to the original seller and end-buyer, non-refundable fee which is not necessarily a deposit, and the profit taken when the buyer purchases the property.
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With these projected sources of income, an investor can still profit even if the end-buyer decides not to buy the property since the non-refundable fee is forfeited to the investor.
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A prime consideration in enacting a lease agreement is to separate the lease policy from the option contract. Two separate contracts can insure the investor of legally evicting the buyer in situations where there’s a conflict of interest and that a single document may be sufficient to present it in a court action. Requiring for a single lease option document may result into the court favoring the tenant and allowing the option consideration to be given back and with it granting him to break the lease contract. It is therefore wise as an investor to conduct a single lease option document to the original seller but transact for a dual contract to the end-buyer. Other key considerations in this lease option agreements are the following: an increase every 12 months of 3% to 5% of the strike price, terms of the contract should be annually and amended every 2 or 3 years, repair charges are to be shouldered for costs below $2,000 by the end-buyer and above $2,000 by the original-seller, property insurance for casualty losses should have co-beneficiaries coming from the investor and original-seller, rent amount to original-seller must be computed at 6% of the strike price while rental to the end-buyer must be based on the mortgage expense, and a clear policy as to when the rent starts.