There is never an ideal market condition to invest in the real estate market. The real estate market is open for investment through out the year. Successful real estate investors always make it their priority to understand what their designated target market is. Besides, it is necessary for an investor to understand the fluctuations in the market. However, there is another strategy that is always underutilized in real estate investing, the option/lease strategy.
A great method to purchase your real estate investments, the lease/option strategy requires very little finance. However, the lease/option is used more as an alternative than a financing strategy because you have not yet received ownership rights on the leased property. A pending foreclosure is one such example where the lease/option is used. There are many reasons why a lease/option is used instead of an outright sale. Home/property owners, looking to auction their property, favor a lease/option, as they do not have appropriate or enough equity for their property through traditional methods. For example, if the property were exceeding its market value, the owner would need to offer an increment in the real estate agent commission. On the other hand, homebuyers who are up against a financial crisis would want to test the profitability of the house or the neighborhood.
The Sandwich lease option is the most commonly practiced strategy in real estate. It requires two lease documents, one between the owner and the investor and the second, between the buyer and the investor. An investor would lease a property with an option to buy it in three years. A tenant/buyer would lease the property from the investor with an option to buy it in two years. When the lease of the tenant/buyer is about to expire, the investor can exercise his option, buy the property and sell it to the tenant/buyer.
Further, a basic lease/option strategy includes two legal documents, a lease agreement and an option. The right to possess the property is offered by the lease document, or, as an investor, you can offer the property to someone else for temporary occupation. Most investors who obtain a lease on a property at lower mortgage rate can sublease it for the appropriate one.
A lease offers the investor the right of possession. Stated under a lease agreement is that the landlord (lessor) offers the tenant (lessee) the right to possess and enjoy the property, which is considered the most important benefit of real estate ownership. Though, the tenant does not handle the property taxes and repairs. Once the right to possession of property has been acquired, an investor can profit by subletting or assigning his right to possession.
An option, which is offered with the lease, is the right to buy a property. It is considered a unilateral (one-way) agreement, where the seller is obligated to sell the property, but the investor is not obligated to buy. The investor receives the right to buy and control the property. The investor can market the property and sell it for a profit. Such a property, if controlled for long in an appreciating market, collects additional value. A lease/option is created combining a lease and an option.
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