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Features
And Benefits of a Lease Purchase Transaction
By Jeff Beaubien
Order "The Lease Purchase Handbook" at www.Lease2Purchase.com
The Lease Purchase contract is the quickest,
easiest and least expensive way to buy, sell or invest in real
estate. It replaces the typical adversarial relationship that
usually exists between buyers and sellers with a win-win method of
transferring real estate ownership. As a result, it is highly
sought after by those who know about its powerful features and
benefits.
Landlord/Seller Benefits
If you don't need much cash up front ($1,000 -
$20,000), the best way to get your full asking price and a higher
than average monthly rent for your home is to sell it on a Lease
Purchase. Since you are offering a huge value and attractive
financing to assist the tenant/buyer, they tend to be willing to
pay a higher sales price and higher than average rent.
Tenant/buyers can easily understand the concept of trading price
for time and value.
When you Lease Purchase your home, you receive a
non-refundable option deposit. This amount can be as much (or as
little) as you wish. You will receive a majority of your profits
at closing when, and if, the tenant/buyer exercises their option
to buy. You also win if the tenant/buyer defaults or allows the
option to expire since option deposit is non-refundable. You can
begin the whole process over again by collecting another option
deposit from another tenant/buyer.
The earnings potential for the landlord/seller
is tremendous since a well-negotiated deal will reap profits at
every stage of the game.
Here are some features and benefits for the
landlord/seller:
- Top Sales Price, Even if Demand is
Low for Your Home: You attract more buyers who are
willing to pay a premium because of the exclusive
financing terms and value you're offering.
- Higher than Usual Rent: Since
you are flexible on your financing terms and are
offering a tremendous value, you can demand a higher
than usual rent.
- Positive Cash Flow: Since you
can demand a higher than usual rent, your positive
cash flow will increase.
- Non-Refundable Option
Consideration Up Front/Minimum Risk: When a
tenant/buyer executes (signs) a Lease Purchase
contract, you receive an non-refundable option deposit
that is yours to keep should they default or decide
not to buy.
- No Realtor Commissions: Since
you are selling your home by owner, you will avoid
paying a 6-10% realtor commission which can add up to
thousands of dollars. You will also save on
advertising costs because your home will be sold more
quickly.
- Attraction of the Highest Quality
Tenants: Because you are renting to tenants who
have a vested interest in your home, they think like
homeowners and tend to take good care of it.
- No Maintenance, No Land-lording:
Tenants who have a vested interest and believe they
are a homeowner may feel a "pride of
ownership" that encourages them to pay on time,
perform maintenance and make improvements to your
home
- Tax Shelter is Maintained:
Because you remain on the deed until the option is
exercised, you maintain all of the tax benefits of
ownership.
- Larger Market of Buyers: You
are marketing your home not only to traditional
buyers, but also to renters and investors. These three
groups make up over 85% of people seeking to buy real
estate.
- No Long Vacancies: When you
advertise your home as a Lease Purchase your phone
will literally ring off the hook. Typical turnover
time is days or weeks instead of months or years.
- Peace of Mind: It is safer
than conventional rentals because of the quality of
the tenants and their vested interest in your home. It
also means that someone is living on-site who will
watch and guard your home against fire, theft,
vandalism, etc.
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Tenant/Buyer Benefits
If you are in the market to buy a home, you are
probably aware of the advantages home ownership provides (tax
shelter, appreciation, security, etc). If you are actively seeking
homes for sale on a Lease Purchase agreement, you either
- cannot purchase a home through conventional
means,
- are not ready to make a commitment,
- are a real estate investor,
- are very smart or
- a combination of the above.
The Lease Purchase contract provides you with
many features and benefits, but perhaps the most powerful one is
the rate at which you accumulate equity. Compare any lender's loan
amortization schedule to that of a Lease Purchase contract and
you'll quickly see that the Lease Purchase contract wins
hands-down -- every time. Moreover, the buying power of a
Lease Purchase contract can quickly and easily land you a home
that you would never qualify for the conventional way.
Here are some features and benefits for the
tenant/buyer:
- Faster Equity Growth: Equity
accumulates much faster (five times or more!) than
with conventional financing through a bank or lender
(See APPENDIX B - Equity Charts).
- Rent Money is Working Toward the
Purchase of the Home: Every month a portion of
your rent payment (typically $100-$500, depending on
the home) is credited towards your down payment or off
of the sales price (See APPENDIX B - Equity Charts).
- Option Consideration is Credited
Towards the Purchase of the Home: When you sign a
Lease Purchase contract, you will pay the seller an
option deposit. This money is your vested interest in
the home and will be fully (100%) credited to you when
you buy the home.
- Minimum Cash Out of Pocket:
When you purchase a home conventionally, you must pay
at least 5% down plus closing costs and prepaids. When
you buy with a Lease Purchase, you only pay first
month's rent and a small option deposit. This will
save you between 25% and 85% every time you buy a
home.
- Frequently No Down Payment at
Closing: Since you have given the seller an option
deposit and you have been receiving monthly rent
credits, there will frequently be very little or
nothing left to pay for a down payment at closing.
- Profits from Appreciation:
Since the sales price is locked in before closing (as
specified in your agreement), any increase in property
value will mean that your equity (what you owe minus
what it's worth) is increasing in the home .
- Possible Assignment (Sale) of
Contract for a Profit: If you are allowed to
assign your option (it will be in your agreement), you
may assign it (sell it) to a third party for a profit.
- Increased Buying Power: When
you buy a Lease Purchase home, you can put down as
little as first month's rent and a $1 option deposit.
Compare
that to a typical bank or lender who requires 5-20%
down plus closing costs and pre-paids.
- Credit Problems are Okay:
Qualification restrictions simply do not exist. You
will be approved at the sole discretion of the seller.
- No Lengthy Escrows or Mortgage
Approvals: Your approval will be based solely at
the discretion of the seller instead of a lender who
can take up to a month (or longer) to render a
decision.
- Control of the Home: You will
be put in full legal control of the home for a
specified period of time without actually having to
own it.
- No Taxes, Less Liability:
Since you do not own the home (yet), you will not have
to pay property taxes and your liability exposure will
be dramatically reduced.
- Quick Move In Time: You can
typically take possession of the home in less than one
week instead of conventional move in times of one to
three months after your offer was accepted.
- Maximum Leverage: You are
spending very little (or no) money to control a very
expensive, and very profitable, piece of real estate.
- Time: Before you actually buy
the home, you will have 6-24 months (depending on your
agreement) to repair your credit, find the best
interest rates, investigate the home and research the
neighborhood and/or schools.
- Minimal Maintenance: Large
maintenance problems or any maintenance problems that
exceed a certain amount of money are delegated to the
seller.
- Privacy: Your name will not be
on the deed until you exercise your option to buy.
- Peace of Mind: You will have
full control of the home and can maintain it or
improve it however you wish.
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Investor Benefits
As an investor, you are probably aware of the
principles of leverage (the use of borrowed funds to improve one's
capacity and to increase the rate of return on an investment).
With the Lease Purchase contract, you can buy (control) properties
for literally no money down without using a lender or going
through the loan application process.
Additionally, the Lease
Purchase contract is so quick and easy to use, you can
significantly increase your productivity and, as a result, your
cash flow. You will receive the same features and benefits as the
landlord/seller or the tenant/buyer, depending on which role you
take in the transaction.
Realtor Benefits
As a realtor, you would be wise to add the Lease
Purchase contract to your toolbox of income producing techniques.
Imagine opening your doors to a world of buyers and sellers that
nobody else in your office has even considered. In fact, every
buyer and seller you meet is a potential Lease Purchase candidate.
This can provide a special market niche for you. And having a
special niche is what separates the top producers from the
mediocre ones.
Never lose another deal because your seller is
overpriced or because your buyer can't get financing. A Lease
Purchase requires half the work of selling a home the conventional
way so you will be much more productive (and wealthy).
Furthermore, some of the most successful professionals in the
world, including insurance agents, movie stars, musicians and
authors benefit from a little-known financial secret about the
best kind of income you can earn; residual income.
What do they
know that you don't? Simply put, they know that residual income
provides for a steady cash flow that is paid at a date after
your work has been completed. Imagine the income you'll receive
from lining up one or two quick and easy deals every month for the
next twelve months.
Or instead of waiting one or two years for the
options to mature, you could:
- Consult with people on an hourly
basis?
- Pay a referral fee to someone for
lining up these opportunities for you?
- Charge an up front fee for your
services instead of waiting for the residual income?
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The possibilities are endless.
More important, you are in a position to make
the Lease Purchase option known to a select group of potential
clients who would not qualify in any other way to purchase. They
will remember the opportunity you gave them. At minimum, you have
a fiduciary responsibility to determine whether a Lease Purchase
agreement could help them solve their real estate problems. It may
be exactly what they need.
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