Monday, March 9, 2009

ANOTHER WAY TO BUY: Lease options

This is a great article about Lease Purchasing, another name for Lease Option. I found the article in the Oregonian Newspaper web site and the article is written by John Kirkland of ReMax Realtors. He references some of the homes selling in his area. I don't know if these homes are still available and I didn't want to remove them from the article.

Sunday, February 15, 2009
By JOHN KIRKLAND
The Oregonian
Many people who, two years ago, would have had no problem qualifying for a 30-year mortgage are now finding themselves shut out of the market -- at least until they can improve their credit rating.
Would-be buyers are having a tougher time qualifying, and sellers are having a tougher time selling because of the shortage of buyers.
As a result, lease-option contracts are becoming more popular for both buyers and sellers, according to Realtor David Van Nus, a broker with RE/MAX Equity Group who specializes in lease options.
How lease options work
A lease option is a legal agreement in which a seller leases his for-sale property to another party, giving that party the option of buying it within a certain time period. The option typically stays open for two years, although you can find option periods anywhere from one to three years. In most cases, part of the monthly payment goes toward a down payment on the property. So while the buyer is renting, he is also, in effect, saving toward home ownership.
A lease option can be attractive to sellers because it gives them a monthly income to make the mortgage payment until the property sells. It can also appeal to buyers who get to live in a house they'd like to buy while allowing them time to become more financially able to do so.
Lease options can also be attractive to investors. Some lease options have a sublet clause, which allows the person leasing the property to sublet it. For example, one could lease a property for $1,500 per month, sublet it for $2,000, and pocket the difference.
Lease-option properties are cropping up all over the Portland metro area, taking in the full spectrum of real estate: new, old, big, small, single family detached and condominiums.
Economy fuels popularity
Van Nus began specializing in lease options in 2006. He said the number of lease-option properties in the Portland area jumped from about 100 a year ago to 650 today because of the sluggish economy.
"Lease options have been around forever, but they're rampant now because mortgage companies are not offering financing for certain kinds of buyers," he said.
One of the 133 listings on Van Nus' Web site (see Resources, page HX) is a three-year-old studio in the John Ross building at 3601 S.W. River Parkway on the South Waterfront. Listed at $247,900, the contemporary condo is 638 square feet with one full bathroom, oak floors, stainless steel appliances, Corian countertops and brushed chrome door levers. It's located on the fifth floor, with a wall of windows overlooking the Willamette River and other South Waterfront condo towers.
The unit sits on the same floor as the building's outdoor terrace, which is landscaped and furnished with tables and seating.
Van Nus said the condo has been on the market for nearly one year. During that time, the owner has reduced the price by $12,000 and rented it out as an executive suite. "It would make a great investment property for this purpose," he said.
Buyer gets in house quicker
At the other end of the size range is a 4,380-square-foot Forest Heights home listed with Peggy Hoag, principal broker with Prudential NW Properties. The house at 9312 N.W. Murdock St. was built and owned by a local builder who had it on the market for close to a year before deciding to do a lease option.
"Making it a lease option allows the buyer to get into a house quicker and easier than seeking financing and buying it outright. It's especially good for people moving in from out of state who might be having trouble selling their home," she said.
The house, listed at $849,500, is full of decorative features, including barley-twist woodwork around two of its four fireplaces, wainscoting, chair rails, crown moldings, and Brazilian cherry floors with walnut inlays.
It has four bedrooms, 3.5 bathrooms, two full-length decks -- one off the main level and another off the master suite -- and a lower-level theater, rec room and bar. The bar is made of cherry with black granite tile, and has a small refrigerator, dishwasher and built-in wine rack.
Hoag has another lease-option listing across town at 4945 S.E. Rex Drive. Built in 2008, the three-bedroom, 2.5-bath house is perched on the side of a steep hill with commanding views from several rooms of the house -- particularly the master suite, which has its own deck. The home is listed at $349,900.
The house has 2,337 square feet, hardwood floors, and ample windows. A second slider door and deck are located off an upper-floor landing. Two upper-floor bedrooms are separated by a shared full bath. The master bath features a free-standing Asian-style cherry vanity with twin vessel sinks.
Hoag said buyers in lease-option contracts typically pay 5 percent of the home's list price as a down payment. Their monthly lease payments are based on the mortgage principal, interest, taxes and insurance that the seller must continue to pay until the home actually sells. Anything the buyer pays above that amount is usually applied toward the purchase of the home, she said.
So the monthly cost of a lease option is pretty close to what it would be if the buyer purchased the house outright. In the case of Hoag's Murdock home, the monthly outlay would be $4,400. For the house on Southeast Rex, it would be about $2,500, she said.
"Good Plan B"
For sellers in this market, Hoag calls lease options "a good Plan B," and something potential buyers can't afford to ignore.
"The sellers are highly motivated," she said. "They want to get out from their overhead."
Portland writer John Kirkland can be reached at kirklandjohnr@msn.com.
©2009 Oregonian


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