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The Tenant/Buyer Should Be Better Than The Typical Tenant
The tenant/buyer should be more credit-worthy than a typical tenant and should have a strong desire to purchase the property. The landlord/seller should have a desire to sell the property in the near future. The tenant’s income needs to be higher to support the additional option fees and the tenant will pay more cash up front. Also, the tenant should be required to perform more of the regular maintenance and repair duties than a typical tenant. However, do not expect the tenant/buyer to keep his/her promises to maintain the property. You should inspect the property regularly.
Picking the Right Property
Not every property is a good lease-option property. In the example above, the house had a fair market value of $100,000. How about a more expensive house? Can you option a $380,000 house? Yes, but most tenants who can afford to buy a $380,000 home can obtain typical financing. The market for $380,000 lease-options is rather narrow. How about a $40,000 home? That market might even be narrower than the $380,000 house market. Why? Because there are few tenants with good-paying jobs and good credit who would want to live in a $40,000 house, and that segment of the mortgage lending industry has shrunk, making it a challenge to get the tenant-buyer financed. The best market to sell properties using lease-options is somewhere between the $70,000 house and the $350,000 house. You should give serious thought to the appropriateness of selling by lease-option on a property by property basis, and tenant by tenant basis. In short, the deal must make sense and be likely to close.