There are many reasons why you have to seriously consider lease options in effectively managing your investment portfolio. In as far as your priorities as an investor is concerned, improving the performance of your investment portfolio should rank high in your list. This goal is normally achieved by increasing your financial gains, minimizing volatility and limiting your exposure to risk. Here are the strong points of lease-options when compared to traditional home rental:
Higher amount of upfront cash inflow
There are more opportunities for you to receive greater upfront cash inflow with lease-purchase arrangement than is normally received from regular rental arrangement. Tenants are more receptive to the idea of providing upfront payment as a fair tradeoff to the option to purchase the property. In a sense, tenants consider this upfront cash payment as some sort of equity which similar to down payment for a regular mortgage in the purchase of a home property.
Higher rental rates
These options are considered premium proposals and there are few investors that offer this option on a regular basis. It is for these reasons why such proposals come with rentals which are higher than the prevailing rate in the market. From the investor’s perspective, this enhances the earning potential of your home rental assets. In most cases, lease-purchase options come with rental rates that are 10%-20% higher than the current rents in the market.
Higher Selling Price
This is also a fair tradeoff for the premium that goes with lease-purchase options. Tenants are usually willing to absorb minimal upward price variance in exchange for the option to purchase the home property. In addition to this, most tenants are more concerned with upfront payment than with the selling price. In the hierarchy of concerns of tenants, the selling price is normally the least of their priorities.
Minimal or Zero Maintenance Cost
Since the tenants have a stake in the property, they will be the “trusted” keeper of your property. You and your tenant will have a common interest in protecting and enhancing the value of the property. This is because your tenants can see themselves as “deferred” owners of the home property. In which case, they will have to share responsibility for the maintenance and upkeep of the home property.
Attract reliable and better tenants
Since you are offering what can be considered a premium option, it is expected that you will be able to attract better and reliable tenants. In most cases, you will be able to work out a favorable agreement with tenants who already experienced renting homes for many years. An ideal tenant is someone whom you can consider frustrated homebuyer. These are individuals who have a clear appreciation of the stakes involved and will be more than willing to accept a deal that you will propose to them.
Lesser management load
Once you are able to wrap up a lease-purchase agreement, you are practically relieved much of your responsibilities under the traditional landlord-tenant arrangement. This means fewer headaches and lesser time spent managing your properties that are under the lease-option arrangement.
Monthly income from properties that are under lease-purchase arrangement are generally classified as rental income. This income category is subject to lower taxes since they are considered passive activity income. In addition to this, the tax payment for the option money can also deferred until such time that the tenant decides to leave the home property or exercise the option to purchase. In the same manner, you can also opt to defer payment of taxes for the upfront payment you receive when you close the lease-purchase agreement with your tenant.