So you found a house you like that is offered as lease option. What exactly is a lease option? In simplest terms, it’s a way you can participate in home ownership if you’re not exactly ready to purchase a home. There are two parts to this:
An option, or purchase agreement, that allows you an extended time to purchase the house for an agreed upon price. At the same time, you’re getting a lease, so for that period of time, usually anywhere from 6 months to five years, you’re also living in that property and making monthly payments. In some ways, it’s the best of both worlds — you lock in a price and participate in home ownership — even if you’re not exactly ready to own a home.
The option fee which is the money you pay in order to have the right to purchase the property (an option agreement).The owner cannot sell the property once you’ve paid your option fee or and signed your option agreement. The option fee is not a security deposit and is non refundable so you want to make sure you will be able to complete your agreement. The option fee varies between 2 months rent and 10 percent of the total purchase price of the house and typically varies based on the condition of the house, the location of the house, the length of time of the option agreement and the corresponding rent amount. The option fee paid at beginning of agreement will be applied towards purchase as a down payment if tenant buyer chooses and is able to exercise their option to buy per their agreement.
There are potential opportunities to negotiate an option where some of the monthly lease payment is conditionally applied towards a future down payment if and when property is purchased. That is not a guaranteed term, but it can be included in the negotiations.
Overall lease options can be an excellent way to get the benefits of leasing and owning a home. However just like home ownership lease optioning a home is a significant agreement and you want to make sure to get any home you are leasing optioning checked out by a trusted professional before moving forward with an agreement.
Many people that want to begin investing in properties have a very common doubt right off the bat – Should I be registering my Cleveland property with the county and city? And how? This question is pretty understandable, since some new owners are not from Ohio, and some are actually trying to get into the game for the first time, so it’s our job to help you understand how the system works and what is the most convenient path for you.
The short answer is yes, you should register your property. It gets a little more complicated than that though. But let’s take it one step at a time. First, let’s refer to county level. You should definitely register your property with the county. It’s actually a misdemeanor if you don’t. It’s a really easy process, you only need to fill out a form and turn it in, and it’s free. We usually do this for our clients right away, even if they don’t ask us to do it, it’s pretty standard.
Municipality level is different. We take care of business in around 30 different municipalities, and around half of those require registration. Out of those, the cost to register a property varies a lot, ranging from $30 to $325. Then, the enforcement of this registration fee is different as well for each municipality; for example, some of them just make it work with the people that actually register, not trying to enforce it at all; some of them tell you that they will enforce it if you don’t register, but they don’t really have a staff to go after you. So basically, the cost of not doing it varies a lot depending on the municipality. Either way, we always recommend to comply with the law and register no matter which municipality your property is in, it’s the good thing to do, and you’re being a good citizen (regardless of its constitutionality).
Here are a few examples where registration might not be advisable:
The first example would be a situation in which you have just acquired a property, and it’s not registered; or maybe you have owned the property for a long time but never registered it. In the case that they never went after you for not registering check with counsel but it might not be in your best interest to register because: 1) They probably won’t go after you if they haven’t done it before; 2) Even if they caught you, the punitive fee that you would be incurring wouldn’t be much different than what it would be if you turned yourself in for not registering in the past. This type of situation means not registering will may place you in a better situation than trying to comply and actually getting you into trouble.
The second example is related to rental registration. In certain municipalities, in order to register your property for rental, they will freeze your ability to actually lease the property for about 15 days or so until it goes through. This means you’d be losing those days’ worth of rent. Renting the property within that period of time, would incur a violation fee which could be a minor amount in comparison to the extra rent. In this case you might choose to go ahead and rent your property and violation fee.
Whether you should register your property depends entirely on the specific context and your own comfort level however with our clients we always confirm registration by default and register your properties if they are not registered already with the appropriate municipalities.
The key to maximizing profitability and minimizing risk as a landlord has a lot to do with choosing the right tenant. That starts with the marketing of the property, and the energy that can be produced off that. There are a few tricks to creating effective advertisements to help find the best tenants for your properties. You can advertise in the newspaper, on billboards, or on the Internet; however, you may be wasting your time and money advertising to people who either aren’t interested in what you have to offer or aren’t qualified to meet your criteria.
A good ad campaign lets you target and attract the kind of tenant you’re looking for. An advertisement works best when it’s appealing. So, before you decide what information to incorporate, think about what characteristics you value in a tenant. Here are some good examples:
· Stable employment
· Pays rent on time
· Has never been evicted or used a landlord as a revolving line of credit
Once you’ve identified characteristics you like in good tenants, think about what factors contribute to a good rental experience for landlord and tenant. What did you as the landlord have to offer your last tenant? Was the last tenant happy and satisfied? Assessing this information will help you decide how to focus on the marketing aspect for the property.
Often you will attract high risk tenants who use landlords as a revolving line of credit when advertising your rental property, so it is imperative that you attempt to identify these tenants immediately. Here at RTS, we have a very specific checklist process for screening tenants and filtering out bad elements for your property. Sometimes we even go as far as contacting up to two previous landlords for the potential tenant in order to verify their background. This can get tricky, since some landlords will lie in order to either keep their tenant (say they’re awful when they’re not) or lie in order to get them to leave (they will say they’re great when they’re not). This is why we have such a detailed process, and it will reduce the risk of you getting a bad tenant for a good property.
It’s important to note that, if the marketing aspect of the property is done right at the beginning, usually bad tenants will filter themselves out even before the screening begins. Rest assured though, that we will do our best to get you the best tenants we can find for you to do business with.
After years of experience in the industry I have learned that it’s a really common practice for many real estate agents to not only mis-value properties during their first encounter with the owner, but also declare a fixed price for it, in hopes of trying to get your business. This goes for both rental price evaluation and sales price evaluation. You would think that, since they are professionals, they probably know about this and have the expertise needed to place a price on your home or apartment with one look. Well you would be wrong.
One very important thing to remember is that value is not a synonym of price. In general terms, the word price represents the amount of money that is asked for in order to purchase a certain something. Pretty basic right? That’s when value comes in. Value represents the actual benefit you are gaining by paying a price at the time you make a purchase. Value is that extra space you would love to have in your bedroom for a triple dresser. Or those extra square feet you need in your backyard for the vegetable garden you want to grow. Or a good view of the beach from the second floor.
And this is why stating that your property is worth a fixed amount and can only go for a certain price is plain wrong. It is wrong because even when an expert is able to assess the approximate worth of a property based its characteristics and recent history, a whole set of additional circumstances go along with that into actually defining the end value of the same property for individual potential buyers.
Maybe there’s a very specific circumstance in relation to the neighborhood surrounding the property that will give one buyer a less attractive standpoint in regards to the value of the property while at the same time, another person will actually offer an additional premium due to the fact that its really close to their workplace. In the second case, as this happens, and this new offer appears due to a single need met by this specific property, the market value begins to vary. This is basic supply and demand going into action.
For this same reason, when stating a property’s potential worth, it’s common practice to use ranges when speaking about actual pricing. This way agents take into account a variation of value that a set of different additional circumstances offer, as well as other changes in market behaviour that could very well affect the value of the property at any given time.
So, if you get to meet a new agent and he/she instantly states a fixed pricing for your property, always remember – they are either lying to you, or they have a crystal ball.