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At a time when the real estate market is currently undergoing a very rough stretch, most players in the market – buyers and sellers alike – have increasingly found themselves having to think outside the box, especially when traditional models of doing business prove unworkable in the unfolding situation.

One of the alternative models of doing business in the property market that more and more people have been considering in a bid to weather the current storms is the so called lease option. The lease option, at its most basic, is an arrangement where a ‘tenant’ rents a house, with an option to also purchase the house when the time for its sale comes, typically at the end of the lease the tenant gets into with the property owner. So the tenant, or more precisely lessee (as they may not be using the property themselves) pays the property owner a little extra in terms of rent, with the little extra amount so paid typically being used by the property owner in servicing the debt they might have incurred in building or buying the property, while also typically serving as the lessee’s down payment installments on the property, so that when the time for the purchase finally comes, they don’t get bogged down with the hassle of trying to get a down payment for the property. Of course, there are lease option arrangements that are structured differently, so that all that the lessee has to pay the property owner monthly is the market rate rent, but where the lessee has to find a down payment (in its totality) for the property when the time for the sale finally comes.

The lease option is not just a tool for offering prospective house buyers an easier way of getting properties they desire more easily, as it also offers the property owners a number of advantages worth considering.

One of the benefits of the lease option to the property owner is that it offers a way to survive the rough stretches in the property market, thanks to the rental income the lease offers (and possibly the ‘down payment’ portion of the monthly rent too), as they – the property owners, await for the better stretches in the market when they can get better prices on their other properties.

Secondly, as mentioned in our discussion on the typical lease option arrangement, the lease option offers the property owner a way of servicing the loans and other debts they might have incurred in buying or developing the property, without having to subject themselves to a loss in a bid to repay such liabilities. This is because the alternative to getting into a lease option agreement for the financially strained property owner might be that of selling the property at whatever going market prices, just to meet the obligations on the loans – which in a tight market like the one we presently have, can mean a huge loss indeed. With a lease option, on the other hand, however the deal turns out in the final analysis, the property owner can typically be sure that the cash-flow from the rental income generated by the lease would be enough to meet the liabilities incurred in developing the property, and possibly even leave something for themselves.

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