Archive for Lease Options
Investing In Commercial Real Estate – Using A Lease Option To Buy Commercial Real Estate
Posted by: | CommentsIf you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!
This is Colt Powell #77....has nothing to do with commercial lease options
Greetings from the lush green grass of a football practice field…..
I am sitting here watching my oldest son (Colt) at football practice. Colt is only ten years old and he has practice four times a week and a game every Saturday. And…he loves it….and I love it too. But for some reason I find myself complaining about it….hmmm.
Anyway…..
Today’s topic is all about lease options. I love using lease options to purchase commercial real estate. Not because it is ideal, but because it is a great way to leverage yourself into a deal with “pseudo” owner financing if the “ideal” does not work. Not having to deal with a bank for a loan just makes life easier…especially the way banks are today.
One of my early commercial deals was a lease option on a 108 unit mobile home park that I still have today. The seller was not willing to sell the property with “true” seller financing. But also knew I would not be able to buy it cash or find a lender to loan on it (39% occupancy). So the seller and I settled on a lease option…and the rest is history. Well…there is a lot more to that which I will write about later on but if it were not for the lease option….I probably would not have the deal. It was and still is a great deal.
I started using lease option when I first started investing in residential real estate. I never thought that knowledge would help me leverage into commercial real estate. The lease option is a great tool to have in your tool belt.
So……
The Commercial Lease Option: Making Deals Work in Rough Real Estate Waters
Not too many people know about the commercial lease option as a means to make a deal happen. The real estate market is a dynamic entity that demands you constantly be on your toes and has a wide array of weapons in your arsenal to deal with whatever comes up. By having a firm grasp on the many different ways to skin the proverbial cat you will be able to work deals out that others simply give up on.
If real estate in general requires that you be willing to find creative solutions, then commercial real estate hammers that point home. By not knowing the ins and outs of commercial real estate you are ignoring a huge part of the market and a potential windfall. Knowing how to negotiate these difficult waters can make the difference between success and failure. The commercial lease option is a great example of this.
A commercial lease option gives the tenant the right to buy the property at the end of the lease if they like, for an additional fee. By buying the option the buyer/tenant has the right but not the obligation to buy the property at the end of the lease. The lease normally lasts one to three years and during that time if the market or the buyer’s circumstances change then they can choose not to buy. In addition to paying the monthly rents and fees agreed upon, the buyer usually pays extra which goes towards the purchase price. This forced savings plan makes it so the tenant has a vested interest in the property and has a reason to make the deal work. If they choose to not exercise the option then the money they spent on the option and the money towards the purchase price all goes away.
If done appropriately and with non-predatory intentions the commercial lease option can be a win-win situation. The seller gets a tenant to cover the expenses of the property plus passive income in the form of the option premium. Usually the purchase price negotiated is higher than current market conditions to compensate for not selling the property to another. These deals are usually done when a traditional deal can’t be reached due to market conditions so having an interested buyer with “skin in the game” could be a godsend for a motivated seller.
Of course a commercial lease option or other advanced real estate deals should not be done without consulting a professional or two. Make sure you know the lease option laws in your state and the market conditions. If you’re new to this game we suggest you check out more on this blog about real estate investing and our awesome investing courses, of course!
So….
There you have a “quick and dirty” explanation of the commercial lease option.” Please feel free to contact us if you are interested in commercial real estate mentoring.
Until next time……rob
How Can I Get The Most Out of My Commercial Lease Option?
Posted by: | Comments
A lease what? Huh?
The Basics
Commercial lease options are a contractually negotiated legal right in which a buyer pays the seller a set fee to purchase a property at a late date. The purchase price can either be decided during the option negotiation or the buyer may agree to pay fair market value at the time of option exercise (transfer or title). Additionally, the buyer leases the property form the seller for a stipulated amount of rent, some of which is applied to the purchase price.
Generally, lease options last from one to three years with the option expiring at the end of the predetermined term if the buyer 
does not exercise. This means that the buyer is not required to buy the property, but if the buyer does not choose to buy, the buyer loses all legal right to the property.
Because lease options are recognized legal rights and vary from lease purchase agreements and options to purchase, please consult with an attorney to determine the best investment for you.
How Do I Protect My Lease Option?
A commercial lease option is a legal right to real property. As with any real estate transaction, you should take the necessary legal steps to protect your rights.
Record the applicable documents with the appropriate state agency. This means that you need to have a copy of the option recorded, as well as a copy of any mortgage to secure performance. Both of these actions will create issues for the seller if the seller attempts to default on the contract.
Use an escrow service for the deed. Escrow agents have fiduciary duties to the titles and deeds to make sure that those instruments are protected. Using this service will save you valuable piece of mind.
Should I Exercise My Option?
Many sellers do not expect option holders to exercise. Consider carefully that you have paid a substantial sum (usually over $5,000) for the option and have been paying a few hundred dollars more a month than market rent toward the purchase. Do you really want to throw that money away? If you used a lease option because you had a difficult time obtaining the necessary 
financing, has your situation changed or has the market changed?
As with any transaction, be sure to consult the appropriate professional in your area.
I Am A Property Owner. Should I Grant A Lease Option?
On the flip side of the previous paragraph, many option holders do not exercise their options. This is a great way to generate extra income by taking the funds from the option as well as the extra rent. There is always the gamble that the buyer will exercise their option, but many have found it to be a successful way to generate passive income. Please be sure to consult a real estate attorney to structure a lease option agreement.
Beginning Investments with Lease Options to Buy Commercial Real Estate
Posted by: | Comments
Using a Lease Option to Purchase Commercial Real Estate....really?
What is a Lease Option?
Investing in a lease option to buy commercial real estate provides an easy way to begin your investment portfolio. Lease options to buy allow you to purchase the legal right to buy the property in a fixed number of years in the future while making monthly lease payments to the owner. This investment allows you to take position of the property and sublease it from the tenant.
What do I need to know about lease options?
A lease option is a legal right to purchase the property. However, there are many variables to lease option transactions. Be sure that you do your homework before you commit to a lease option to buy. When considering these transactions, you will need to negotiate more than just the sales price. You will need to settle on rent credits, repair liability, closing costs and option consideration. Further, you need to bear in mind that the property may or may not appreciate in value.
Financing
Do you need financing for this deal? Before jumping into a lease option to buy make sure you obtain loan pre-approval from your lender to allow you to exercise your option. In other words, you need to have the money for when you are ready to actually buy the property. With the market tighter than it has been in past years, it is important that you have your financing taken care of and the loan properly underwritten.
Further, make sure that you have agreed to and understand that your lender may only be able to offer a certain interest rate structure. Some lenders will only offer variable interest rates, which can be subject to change at any time with or without notice. If your interest rate goes up three points, will you still be able to profit from your investment? Make sure that you talk to a variety of lenders to find the right financing for your needs.
Appreciation or Depreciation?
With the change in market conditions over the past year, many property owners have experienced significant valuation declines as fair market values have decreased. If you exercise your option to purchase three years from the purchase of the lease option to buy and the property appraises for less, you may have to find additional financing to cover costs.
Is the Property Worth It?
Sellers offer lease options to buy for a variety of reasons. They may not want to lose the asset quite yet or they may not be able to unload a bad property in any other way. Lease options may become more prevalent as financing becomes more difficult to obtain. However, it is your responsibility to do the homework. How has the property performed? What is the current occupancy? What are the occupancy rates from the last five years? Look to all the data you can obtain to make sure it is the right fit for you.
Lease options can be a great way to begin to grow your commercial real estate investment portfolio. Just make sure that you get all your ducks in a row before you jump in!