We have already discussed the various exit strategies of the traditional buy-to-let and cash purchases and most would agree they are good strategies but limited by their very nature of strategy. However, with the lease option strategy, a whole new exciting way of looking at exit strategies starts to emerge!
For a start, the buyers are in a different category to the normal investor i.e. they are actually ‘renting to own’. At no time are they ever under any pressure to purchase, except from their own personal commitment to actually purchase the house.
Secondly, the Buyer chooses not to purchase after their lease option is over, they can simply walk away. Or they can stay on as tenants if it this is agreeable to the seller. Or they can ask for an extension. In this case, the seller may choose to re-negotiate some or all of the terms such as sales price, length of lease option, and amount of option payments credited towards the purchase. The seller may choose to collect another lump sum option fee and different instalment option fees that may be applied to the sales price of the property.
Therefore, this is what can happen:-
1) If the Buyer chooses to exercise their option; they will apply their option fee(s) paid to date towards the purchase price. They will get a mortgage from a bank, building society or other lender. When a buyer exercises their option, the
seller keeps the option fee(s), the rent, along with their back-end profit
2) If they are unable to get a mortgage or the mortgage of their choice, the seller may consider offering them another lease option agreement on re-negotiated terms.
3) If a buyer chooses not to exercise their option, the seller keeps their option fee and the rent. They would not collect their back-end profit, but they can re-market the property and sell it again on a lease option.
So you can see why Lease Options is the most viable property strategy in the market today and actually has the most flexible and practical exit strategy of them all! Next time, we will look at why this is relevant to cashflow and profitability in helping everyone achieve a win-win situation.
All for now…
Sudeshna Choudhury
