Option Agreement Lease

3. The length in residential real estate is usually 1 to 3 years. However, it is often careless when the tenant buyer accepts a short period of time (often 2 years or less). The tenant buyer often expects the property to increase in value, particularly if the agreed purchase price is equal to or greater than fair value at the time the option is opened. Perhaps more importantly, often the tenant-buyer has a credit or other financial problems that prevent him from buying immediately. The option period is used to strengthen the tenant`s credit, accumulate rental credits and position themselves when to purchase. This can often take several years. With the option to purchase away, the buyer pays money to the seller for the exclusive right to buy the property within a certain period of time (often from six months to a year). The buyer and seller can then accept a purchase price, or the buyer may agree to pay the market value at the time of exercise of his option. It`s negotiable, but many buyers want to block the future purchase price at the beginning. For the seller, the payment of the option can be treated as a down payment or a first payment of the transaction.

The total amount of payments may ultimately contribute to a capital gain or loss, both of which have a tax impact. Rental income also contributes to capital gains. The seller can no longer claim depreciation on the property if they are no longer considered owners. The good news for tenants is that banks generally admit that the total resources of the premium go through the payment of rent to down payment for the purchase of the home. However, if the rent charged was a market interest rate, the bank cannot allow one of the funds to be applied to the purchase price. It is important for buyers to check with several banks to determine their policies regarding the financing of a home mortgage with a rental option. But leasing options are worth knowing about, because: Remember: a leasing option was never the first choice for the owner, and their finances are probably a little precarious if they were put in that position in the first place. You rely on your cooperation as long as the agreement persists, which you risk as: option money is not refundable. No one else can purchase the property unless the buyer is late and the buyer generally cannot give up the lease without the seller`s consent.

Buyers are often responsible for the maintenance of the property and the payment of all expenses related to its maintenance over the life, including taxes and insurance, and are contractually required to purchase the property.