We currently are renting a house and, after having read Steve’s book, I was delighted to hear of the lease-buy option. However, I’ve no idea how to go about approaching the owners of the house with this suggestion. Is there a detailed resource that steps you through this process – from initial discussions with the owner of the house, to working out how to price the house, to drawing up a contract? Better still, is there someone (solicitor perhaps) who can do it for us? How do you find out what solicitors specialise in property? It would be great to have this information by the time our lease was due again (March 2004).
Whereabouts are you living?
Generally, most LOers mark up the rent by about 40% and the purchase price by about 20%. Using this as a guide, you could just type up a letter to the landlord saying you would like to pay more rent, in addition you will pay for all rates, repairs insurance etc. In return you just want the option to buy the property at an agreed price sometime in the future.
Start low and see what the landlord says and you can then adjust your offer-if necessary.
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
Thanks for that info on markups in rent and price. We live in a suburb where the prices have skyrocketed in a matter of months leaping from an average price of $280,000 a little while ago to $350,000 now (going by the real estate office’s windows). I think I’ll just save my money for a deposit and if they decide not to renew our lease or to put the house on the market, consider what we’ll do then.
There are no set parameters for a lease option, meaning you should outline what is affordable, and considered fair for both parties, and submit an offer to the property owner.
Although it is common for the rent payment to increase, the difference is generally applied toward your down payment. To protect this investment you can include a condition in your offer which requires these funds to be repaid if you do not exercise the option.
In terms of percentage [increase in rent], again make an offer that you consider financially viable.
As for the offer being over market/capital valuation, make an offer more in line with today’s valuation, or slightly under – as a starting point. You may find the owner will accept your valuation.
The key is ensuring the property’s valuation will continue to appreciate during the lease period. If your situation changes, you retain control of the property and can then on-sell to a third party, exercising the option with the original owner and profiting accordingly.
My recommendation would be to find an attorney or other professional experienced in preparing lease option agreements as there are a number of factors to take into consideration, in terms of protecting your interest and maximizing the value of the transaction.
The benefit of presenting the property owner with a lease option is you have nothing to lose. It may be declined, but the owner is aware you have an interest in acquiring the property, and if his/her situation changes in the future, you may find the offer is accepted.
— Michael
Because I am not located in Australia I am not privy to lawyers or other professionals qualified in lease options.
What I suggest is submitting another post asking others to refer someone. I would recommend asking for references, or conducting some form of due diligence before proceeding – to ensure the lawyer has sufficient experience in lease option transactions.
— Michael
Thanks for that insight Michael. Next question is – where do you find a solicitor who specialises in property/lease options, or who at least knows SOMETHING about them? The Law Society?
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