The concept of the option can be applied to shares, land or property. A Lease Option is a method of selling a property. Under a lease option, the vendor agrees to sell the house at a fixed price to the purchaser; however the purchaser does not complete the transaction until a later date. In the mean time, the purchaser holds what is called the Lease Option for the given period. At the end of this period the purchaser will complete the transaction and purchase the property in full. As soon as the Lease Option Agreement (Unilateral agreement) is made, the Option Holder becomes wholly responsible for the property under contract and the vendor is able to walk away with no further financial responsibility. In a Lease Option it is the seller that is bound as under the terms of the agreement they must sell their house should the buyer wish to buy. However, although the buyer controls the property from the outset of the Lease Option agreement they are not bound by the contract to buy the property at the end of the term.
The Lease Option holder takes all responsibility for the upkeep, the mortgage payments and letting the property -in short, any costs that might arise and any rental income. The only connection to the property the vendor maintains during the option period is the mortgage remaining in their name until the option period is over and the purchaser exercises the option to buy. At this point the mortgage is transferred in name also to the purchaser.
The benefit of Lease option includes:
- They can be used to control a substantial portfolio without the need for personal mortgage debt or liability.
- Hard pressed landlords can re-organise their finances and transform property portfolios.
- Through rent to own, property options are opening doors for potential home-owners when finance is not readily available or deposits are too large.
- You are able to take full legal control of a large number of properties, displaying good monthly positive cash flow.