A lease option is a contract with the seller and the tenant/buyer of the property. It is simply giving the tenant the option to purchase the property in the agreed amount of time.

Whether it is a one-year or a two-year lease option, the tenant can exercise the right to purchase at any time. A non-refundable deposit is usually required to be put down on the property and is applied to the final purchase of the home.

As the seller, you should open an account to hold the deposit in case the tenant misses a monthly payment. This will keep you from pulling money out of you own pocket if there are any problems. Also a portion of the rent is applied to the final purchase of the property.

An incentive plan is a good tool to use to make sure that all rents are paid on time. You can make an agreement that if all rents are paid on time, you will apply 25% percent to the final purchase price, and if the rent is late, nothing will be applied that month.

An option contract is only valid if the buyer is paying for the option. This payment is non-refundable, but will be applied to the final purchase of the property. If the buyer chooses not to exercise their right to buy the property then the seller will keep the deposit and can do what he or she wishes with the property.

The option term should be a specific date. The buyer has up to the date to exercise his or her option to buy. The contract should also state how the buyer must exercise his or her option. Whether it is a letter stating that they intend to buy, a letter from their lender for approved financing or the money in your hand by the stated date.

Remember you will have a good idea when and if they will be able to purchase the property, because you will be helping them with their credit and financing. Be sure to clearly state which portions of the rents will be applied to the final purchase price.

These are the main components of the contact, make sure you and the buyer agree on the terms, and that they are clearly stated on the contract.

You find a property where the seller must sell quickly because his work is transferring him to a better position three states away in two weeks. He doesn’t want to list it with a realtor again; he wants to sell now so he can move. The property is worth $180,000 and he owes $130,000. He’s asking $170,000 for the property, but really isn’t depending on the money for the move. His monthly payment is $1100.00.

Property Overview

Market value-$180,000

Asking Price-$170,000

Balance Owed-$130,000

Your Offer

$170,000 1 year option to buy, right to renew for 2nd year. Monthly payment equals mortgage $1100 due in 60 days.

$1000 Deposit

$39,000 Cash paid to seller at closing$130,000 loan to be paid or assumed at closing.

You Sub-Lease

$185,000 sales price on a 1 year lease option

$5,000 deposit

$180,000 due at closing

$1400 monthly rent

Profits Gained

$300.00 Monthly rent profits (3,600/year)

$15,000 profit on sale of property

Total Profit=$18,600

Can you see how easy it is to take control of the property and make a profit?You just made $18,600 without using your credit or a dime of your own money.

You find a property that is worth $150,000 and the seller has a loan balance of $144,000. Her payment is $900.00 a month and she has to sell now. She isn’t worried about making money, she just wants to get out from under the property and keep her good credit standing. She will be happy if someone will offer enough to pay off her mortgage.

Property Overview

Market value-$150,000

Balance Owed-$144,000

Your Offer

$144,000 Lease/Option with the first payment due 60 days, right to renew, and no deposit.

NO Deposit

You Sub-Lease

$155,000 sales price on a 1 year lease option

$5,000 deposit

$1000 monthly rent

Profits Gained

$100.00 Monthly rent profits (1,200/year)

$11,000 profit on sale of property

Total Profit=$12,200

Even with no equity you can still do alright. You just made $12,200 without any money, credit, or risk.

Your FICO score ranges from 300-850, and is always being recalculated. If you are below a 720, then you have just a bit of bad credit on your report. Your FICO score is determined by the following:

Past Payment History: This alone covers 35% of your credit score. Just one little late payment can affect your score dramatically. The most important thing is to always pay your bills on time. If you have a problem with this, you should consider setting up auto pay accounts.

Total Credit balance: This covers 30% of your overall credit score. This is the total amount you owe compared to your total credit limit. If you want a great credit score, you need to pay down your credit cards or credit lines to about 15% of your allowed credit. You can see a dramatic change just by making a large credit card payment.

Credit History: This is the length of time that you have established credit, and this accounts for 15% of your score. The longer you have been in good standings with a credit company, the better interest you will receive. Opening new accounts will actually hurt your overall credit score. Also, having idle accounts won’t help your score. You are better off using your card for gas or groceries, and then paying it off every month.

New Credit: The amount of credit that you apply for, accounts for 10% of your overall credit score. When you apply for credit, it is noted on your account as a “hard inquiry” and can be considered as a bad mark to future lenders. Stop applying for credit you really don’t need.

Type of Credit: This accounts for 10% of your overall score. Credit cards, retail accounts, car loans, and mortgage loans are always being monitored. You need to be able to find the fine line between having too much credit, and not enough credit. Here are the next steps to start rebuilding your credit:

1. Pay all bills on time.

2. Carry a lower balance on your credit cards.

3. Maintain fewer credit accounts.

4. Do not open unnecessary new accounts.

5. Fix any errors that appear on your credit report.

Now that you how to maintain a good credit score, you have to fix the mistakes you made in the past.