Creative real estate investing is defined as the usage of non-traditional ideas and methods of selling and buying properties. Here, the buyer will initially secure his finance taken from a lending organization and pay the full amount together with borrowed funds which will serve as his down payment. This technique works well in my home state of Colorado, but other states such as Texas have a lot of restrictions on a lease option. Be sure to check your state and local laws regarding these types of transaction.
One of the effective ways of purchasing a house is through cash payment. Unfortunately, the typical family is not really in its proper financial situation to get into an agreement like this. Majority of the families are can modestly afford a down payment, thus, they are forced to secure what was left of the price of their purchase through a mortgage from a lending institution. However, buyers should not exhaust their entire savings just to pay a huge down payment amount. This will lead to deprivation of reserves if in case any fall back happens or income will go down in the future.
What are the options?
An option in real estate investment is termed as a person’s right to purchase a property for a specified amount on a certain period. The owner may choose to sell his or her option to someone. The option buyer then hopes that the value of the investment property will either down or up. The seller will receive a premium known as option consideration. The buyer also has the right to purchase the property or selling it to another person which he or she can exercise. This is usually done to gain control over the property without investing a lot of cash. Premiums in the option are generally non-refundable. Options represent the equitable interest and are recorded by the county recorder.
What is a lease option?
A lease option is comprised of two main parts namely an option and a lease (rental agreement). This is written in either one or two contracts. A rental agreement occurring between the potential lessee or tenant and the owner is implied as a lease. Leases hold the lessee responsible for paying the maintenance, upkeep, insurance, and taxes of the property. Lease payments are typically five to fifteen percent higher than the rent of the property. For the lessee to have tax benefits, this lease type is structured as if the lessee is the owner himself. A quick reminder that his technique works well in my home state of Colorado, but other states such as Texas have a lot of restrictions on a lease option. Be sure to check your state and local laws regarding these types of transaction.
What is a sandwich lease option?
This is not, in any way, an option. This is just created by tenants who wish to exit his or her unit as the tenant not having exit options written by the landlord in their lease. In order to provide mitigation option (a way of reducing costs and risks), a person can find a tenant to replace the unit. The tenant found for replacement becomes the tenant of the existing tenant and not the tenant of the landlord. The legal tenant will now have the right to create whatever rent, policy and deposit systems that he or she wishes to imply on the new tenant.
To further understand the process in a sandwich lease option, a branch of creative real estate investing, further explanations are provided. The moment the new tenant notices any need for maintenance or has encountered problems with the unit, he or she will contact the landlord who will then contact the real, legal landlord in for repairs and maintenances to happen.
The new tenant is required to achieve payments to the temporary landlord who will then make the rent payment to the original landlord, thus, making things legal and paid.
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Attorney William ("Bill") Bronchick, the host of Legalwiz.com, has authored six best-selling books and is sought nationwide for his 30+ years of real estate and legal knowledge. He has been interviewed by numerous media outlets, such as CNBC, TIME Magazine, USA Today, Investor Business Daily, Forbes, and the LA Times, to name a few. William Bronchick is the co-founder and past President of the Colorado Association of Real Estate Investors and the President of the Colorado Landlords Association. Click on the "About" link above for more information on William Bronchick.