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Lease Option
A lease agreement that gives the tenant the right to purchase the property at a predetermined price.
Definition
A lease option combines a rental lease with an option to buy the property at an agreed-upon price within a specified timeframe. The tenant pays a non-refundable option fee upfront (typically 1-5% of the purchase price) and may receive rent credits toward the purchase price. For investors, lease options can generate premium rent, secure a future sale price, and keep tenants invested in property maintenance. For buyer-tenants, it provides time to improve credit, save for a down payment, or test a property before committing. If the tenant doesn't exercise the option, the investor keeps the option fee and any rent credits.
Related Terms
Creative Financing
Non-traditional methods of financing a real estate purchase, such as seller financing or subject-to deals.
Seller Financing
When the property seller acts as the lender, allowing the buyer to make payments directly to them.
Buy and Hold
Purchasing rental properties and holding them long-term for cash flow, appreciation, and tax benefits.
Cash Flow
The net money remaining after all income is collected and all expenses and debt payments are made.
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