Buying properties at a discount and then leasing them to a tenant/buyer works well in today’s market. First, it gives the tenant the opportunity to buy their dream home, even if they don’t have perfect credit or a large down payment. If you can offer financing to the seller-tenant, so much the better for both of you. However, if the tenant does not purchase the property, the advance lease option money is theirs and is non-refundable. If the tenant decides to buy the house within the option period, then he can work out some kind of credit system that applies the lease money to the purchase of the house. It’s a win-win for everyone.

Financing with private lenders

If you are going to keep the house and rent it for a while, then you will want to opt for traditional financing instead of private lenders. Private money lenders are good to use when you plan to quickly rehab and turn around a property. A private money lender is only interested in the property as collateral and if it is a good deal. They do not have to adhere to strict lending guidelines and can choose to work with whoever they want and on whatever terms the parties agree to. Private money lenders can go out of business quickly. You may pay a much higher interest rate on a hard money or private money loan, but it’s worth it because you can close quickly and then move on and do your next deal. Always have a list of private lenders on hand that you can call when a good offer comes along.

Leasing Option-Benefits vs Disadvantages

Benefits
Leasing options give you access to a great resource of buyers who want to buy, but for whatever reason can’t buy right now or aren’t ready to buy. You get an upfront option fee that is non-refundable if the tenant doesn’t buy.

Disadvantages
The downside of a lease option is that if you need the proceeds of your home sale right away, you’re better off selling your home because otherwise you’ll have to wait for the tenant/buyer to exercise the option. If they don’t buy the house, then you have to start over trying to find another buyer. With a lease option, the owner must continue to pay property taxes and insurance, and make repairs.

What to negotiate in your lease option agreement?

You must negotiate the following in your lease option agreement:
1.Purchase price.
2. Option amount. Check your local state rules.
2. Term.
3. What portion of the rental amount will be credited toward the purchase price.
4. Who does the repairs.
5. Who is responsible for what type of insurance and policy limits.