Lease option

Also called rent to own, this is a powerful technique to increase profitability.

It consists of two documents: a normal lease and an Option Agreement.

The normal lease should always include 3 months in advance: first, last (legally called advance rent), and deposit (this can be higher than a month's rent).

Why? Because in case of eviction, landlord cannot legally repossess the deposit, that is there to safeguard damages to real property and it does not belong to him, but the advance rent does, it is landlord's money.

The option simply states that the optionor has right of first refusal to buy that property at the end of the lease. Options cost about 10 to 15% percent of purchase price of property or any agreed amount between optionor (tenant) and optionee (landlord).

Options should be made non-refundable and with an expiration date of 30 days after lease terminates, this does not confer any right to tenant to overstay his lease and become a heavily fined holdover tenant, also options should be made to explicitly state that the lease does not confer any equitable interest in the property.

Finally, options have to mention a purchase price but make it contingent on fair market value at the time of purchase, to be stipulated by a licensed appraiser, that is how the seller gets to keep the benefits of appreciation.

An added benefit is that optionors tend to take care of the property more than a normal tenant, since they think they would be able to buy it later on.

An option Agreement obliges the seller to sell but not the buyer to buy, the advantage to the landlord is that renters rarely execute their option, so the property reverts to the landlord who gets to keep the rent and the option, and is free to restart the transaction.