Suppose you own a home and can wait out the term of a lease option to exit the property, typically from one to three years. Or perhaps you have a property you’ve had trouble selling. In that case, a lease option is an excellent sales method that can be pretty lucrative—combining the benefit of a flip by receiving a hefty option fee at the beginning of the contract with the benefit of long-term renters.
Of course, tenant screening should always be top-notch with lease options. First, you’ll want to perform a rigorous review to bring in highly qualified tenants, staying within all local, state, and federal guidelines governing tenants. Then, with the right property and the buyers in place, you could cash in on this advantageous method of selling real estate. So read on as we discuss how lease options work for your Memphis house.
Sales Price
Lease options can be a profitable strategy for selling a house in Memphis. Buyers are often willing to pay extra for the opportunity to enjoy the benefits of homeownership while having time to make sure they like the property, repair their credit, or save towards a downpayment. As a seller, you can take advantage of this by setting a sales price that is above the current market value of the property, based on your estimate of its future market value. This allows you to maximize your profits, even if prices soar above your estimate in the future.
However, there is also some risk involved in offering lease options. If home values fall, buyers could end up owing more for the property than its market value. To mitigate this risk, you can cushion the sales price now, while still setting it higher than the current market value. This can provide a degree of protection against potential market fluctuations.
Overall, lease options can be an attractive option for both sellers and buyers in Memphis. Buyers get the opportunity to build up their savings and credit while enjoying the benefits of homeownership, while sellers can maximize their profits and mitigate some of the risks associated with market fluctuations. It is important to work with a qualified real estate attorney and to ensure that the lease option agreement complies with local laws and regulations.
Option Fee
Lease options can offer a significant cash influx for sellers of houses in Memphis. When a buyer enters into a lease option agreement, they typically pay an option fee for the exclusive right to buy the property at a later date. The fee is typically between two and five percent of the home’s sale price, which can be a substantial amount, especially considering that the average sales price of homes in Memphis reached an all-time high of $400,000 in May of 2022. Therefore, sellers could potentially collect up to $20,000 or more for the option fee.
Furthermore, the option fee is typically nonrefundable, which means that if the buyer decides not to exercise the option to purchase the property, the seller gets to keep the option fee. This can provide a valuable source of income for sellers and can help to offset any potential losses that may arise from fluctuations in the real estate market.
Overall, lease options can be an attractive option for sellers of houses in Memphis, providing them with the opportunity to generate a significant cash influx while also mitigating risks associated with market fluctuations. It is essential to work with a qualified real estate attorney to ensure that the lease option agreement complies with local laws and regulations and to make informed decisions about pricing and other terms of the agreement.
Rent Premium
Increased monthly cash flow is another way lease options work for your Memphis house in the higher rental rates you can charge, with a portion of the rent payment to apply towards the down. The rental premium amount must be above the market average for many lenders to consider it for the downpayment, so be sure to check with mortgage lenders about the terms.
Eliminate Holding Costs
Essentially, lease options work for your Memphis house by delaying the sale while your tenant covers your mortgage payments and utility costs that you would have paid monthly to hold the property. In addition, depending on the agreement, the tenants are also responsible for maintaining and repairing the property as if it were their own home. However, some contracts have shared responsibility for more significant repairs exceeding a specific amount, such as $500.
The local professional home buyers at Memphis Home Buyers understand how lease options can work to your benefit for your Memphis house. Our full-service in-house network of professionals can help you handle everything, from locating the perfect property to selling through a lease option to property management and everything in between. At Memphis Home Buyers, we have the connections and the team to do the job. Let us help you earn the highest possible returns on your real estate investments because we win at Memphis Home Buyers when our investors win. Let the seasoned professional home buyers at Memphis Home Buyers help you. And don’t forget to ask about our current inventory of the best lease option properties available in Memphis. Call Memphis Home Buyers at (901) 828-8419.