Hello all.
I have a question regarding lease options. If you do a lease option for 3 years what happens if there is an interest rate rise during that time, your profit will be eroded wouldn’t it? With a wrap their interest rates moves when your moves but what happens with a lease option?
Cheers
you can jsut put a clause in your contract which states rent will rise in line with interest rates and the CPI (but cannot go down!!).
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Jumbo 123
You must remember that there are two parts to a L/O one is the lease the other the option.
The buyer although they have agreed to buy the property are still technically a tenant at first so there are two ways to deal with rate rises. As Terryw has said you can simply have a clause that says they will pay interest increases. The other is you can raise the rent up each year at an agreed level to cover any losses or you can do both.
Unlike a wrap you use an interest only loan with a L/O this should help to lesson the impact of rate rises that you pass on to the buyer. L/O is the best of both worlds so you make the rules and as long as the buyer agrees to them then you should be able to maintain you ROI.
Hope this helps.
Kerwyn [exhappy]Thanks for the feedback, that is great advice.
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