Welcome to Creative Financing

Let’s discuss what a lease option is and more importantly how to use it as an investment strategy to acquire deals with little to money down and even how to use lease options to flip houses for big profits.

Lease-Options Explained

A lease option is a contract between the owner and a buyer to lease the property for a specified time and at the end of the rental period, the buyer has the option to purchase the property usually for a preagreed set price. 

It’s important to know that the option part of the agreement means that the tenant/buyer has the option to buy but is not obligated whereas the seller does NOT have the option to sell and is obligated. In other words, it binds the seller to sell but does not bind the buyer to buy.

Lease options are very common when a buyer wants to buy the

property but cannot qualify for traditional financing yet and needs

time to improve credit, save more money, etc. A lease option gives

the buyer assurance that they will have first right of refusal to buy the

property and gives the seller rental income from a more committed

tenant who hopefully will eventually buy the property.

Typically to show good faith, the tenant-buyer puts down up-front a

“non-refundable option fee” or consideration of 3-10% to be applied

to the purchase, but the amount is completely negotiable. It’s also

common for a portion of the monthly rent to be applied to the

purchase, usually $50 up to $200 depending on the lease.

If the tenant decides NOT to exercise the option and does NOT buy

the property for whatever reason, the lease terminates and the owner

keeps the option money.

Compared to other creative financing strategies such as seller Creative financing or a land contract, a lease option is the easiest and most favorable method for the seller to terminate the agreement and take back possession of the property.