Are Leasing Options a Good Strategy For Colorado Real Estate Investors?

by David Gerlitz on July 12, 2011

Are leasing options a good strategy for Colorado real estate investors? In most cases, yes. There are different alternatives when setting up leasing options, depending on your situation. Here are the three leasing options that are used most often.

Are Lease Options a Good Strategy For Colorado Real Estate Investors?

Month To Month Leasing Option

One leasing option for Colorado real estate investors is to lease to a tenant month to month. For the tenant, this is the easiest lease to get out of and may not require a written lease agreement. In most jurisdictions, all you need to do is give your tenant 30 days notice to quit the property. That having been said, it is appropriate to charge more for a month to month option than normal rents AND to require a security deposit to cover any damages incurred.

Long Term Leasing Option

Another option is a long term lease. This will require that you have a written document and spell out all the do’s and don’ts for each side:

  • the term of the lease
  • what happens once that time period expires
  • what happens with any security deposits
  • what the monthly rent is and how it is paid
  • who is responsible for repairs
  • if pets are allowed
  • if additional tenants are permitted

This is a fairly standard leasing agreement and having a local attorney draw one up for you should be a very affordable option.

Lease Option To Purchase

Another option is a lease purchase or lease option. The lease option is set up where a buyer pays money to the landlord or owner for the right to purchase the property in the future, and agrees to rent the property in the interim at a set monthly rent. The amount is negotiated, as is the future purchase price and term of the option. In this case, if the lessee or buyer does not exercise the option at the end of the term, the option expires and the option money is not refunded, unless it is negotiated otherwise.

Most importantly, the lessee or buyer is under no obligation to buy the property, they just have the option to do so. A lease purchase also has an option fee and interim rental, and during the lease period the lessee or buyer applies for financing to be put in place after the lease expires and the property is purchased. Typically a portion of the monthly rent is applied towards the purchase price. In most cases it is shown at settlement as their deposit. In this case, no one else can purchase the property during the rental period, unless they default on the agreement, and the lessee or buyer is usually responsible for repairs on the property.

As with any other real estate question, check with your attorney to be sure you are following local and state laws and regulations.

These are the most common leasing options, although the myriad of options are truly unlimited depending on what you and your tenant agree to. If you are a Colorado Real Estate Investor looking for great rental property to purchase, give us a call today for a FREE list of available properties 720-306-8017!

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