Installment contracts vs Lease Options
I have been thinking about this topic lately and have come up with a few points on the advantages/disadvantages of wrapping using installment contracts or a Lease with an Option to purchase. They can both be set up the same way, ie the Option strike price can reduce with each repayment over time just like a PI loan, so there are no real differences with the figures (I think anyway).
LEASE OPTIONS: Benefits
1) There are no problems with disclosure to lenders
2) The tenant is still able to receive Rental assistance from Centrelink if they qualify
3) Can use IO loans
4) The investor is able to use any equity in the property. eg if values increase you could use this extra equity.
5) Contracts may be less comlicated
6) Less problems if tenants move out mid lease. ie don’t have to worry about repaying their equity
7) The tenant may be more likely to break a lease and move out, then to walk out on a loan.LEASE OPTIONS: Disadvantages
1) Tenants may be able to take you to the Residential Tenancy Tribunal for disputes. You could be forced to pay rates, repairs etc. One way around this is to pay these yourself with the amount built in to the price.
2) Tenants wouldn’t qualify for the FHOG (this could actually be an advantage for them to cash you out earlier).Can anyone add anything to this, or comment on it??
Regards
Terry Waugh
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