The exit strategy you use to sell your rental property in Los Angeles can make all the difference in earning the highest possible returns on your Los Angeles real estate investment. An extremely lucrative alternative to selling your house outright, lease options, offer a way for you to earn a higher return on the sale. This option can work in your favor as long as you have (a) tenants interested in purchasing a home and (b) tenants qualified financially to pickup the option to buy the house. If you don’t have a tenant interested in lease options, explore How To Sell a Rental Property with Tenants in Los Angeles.
Much like having tenants, you’ll be renting out your Los Angeles rental property. However, these tenants have much more at stake than the average tenants, as they are, in essence, test-driving ownership of the property. These tenants are willing to pay extra for the chance at living the lifestyle of homeowners while correcting any missteps with their credit or building savings for their down payment on the property. With the right tenants and a thoughtfully constructed lease option agreement, many investors learn to appreciate this arrangement’s benefits and begin investing with a lease option strategy in mind. So read on as we explore using a lease option to sell your rental property in Los Angeles. Alternatively, explore How To Sell a Rental Property with Tenants in Los Angeles.
Asking Price
Because you’re the owner and get to set the price and terms in order to agree on a deal with your tenants, you can set the sales price for the property now when you use a lease option to sell your house in Los Angeles. Often set above market to account for the appreciation estimated to occur over the contract term, while you take the risk there could be a sudden hike in values, the tenant takes the risk that values drop.
In a high demand market such as Los Angeles, consider setting a price that is well above the current market value, baking in some future apprecation. Research comparable homes that have sold in the past 1-2 years and see how the price per sq. footage has increased.
Option Fee
Using a lease option to sell your house in Los Angeles means that you’ll collect an initial option fee ranging from one to five percent of the sales price, though option fees of up to twenty percent are not unheard of, and the fee is typically non-refundable. With the Los Angeles median listing price for active listings being around $1,200,000 as of May 2024, 5 percent would be $60,000, which would apply towards the purchase if the tenant exercises the option.
One way to grasp the concept of an option fee is by considering it the equivalent of a deposit in a traditional home sale. In a state such as California, a buyer signs a purchase contract and shortly thereafter, submits a deposit to entire them in to an official contract to buy a property.
Tenants Maintain Your Property
While you’ll still hold the title and be responsible for the taxes and insurance, everything else will fall on the shoulders of the tenant when you’re using a lease option to sell your house in Los Angeles. So, for example, tenants typically carry the financial responsibilities of maintaining the home and even making repairs.
In a market such as Los Angeles, passing the maintenance and repair responsibilities to the tenant would be a huge benefit for the existing property owner. Examples of financial responsiblity that could be passed over on a lease option are the following: utility bills, landscaping, minor repairs, or major repairs related to plumbing, electrical, sewer, or roof. Given the range of items, discuss this in detail with your tenant, so that it’s clear what they’re agreeing to pay for.
Above Market Rent in a Lease Option
You’ll make above-average rental income using a lease option to sell your house in Los Angeles; the portion of rent paid at above-average rental rates is called the rent premium. The buyers would then deduct the amount paid into the rental premium over the contract term from the sales price upon exercising the option. Of course, if there is no purchase, you’ll also keep these funds.
On top of their obligation of paying rent, your tenants are adding the obligation of paying down their balance to you in order to buy your home in Los Angeles. Therefore, when they do officially pickup the purchase option, their balance owed to you will be reduced.
Financial Benefits to Property Owner, Either Way
At the end of the lease option agreement, typically one to three years, your tenants can exercise the option to buy the home or walk away. In either outcome, the Los Angeles home owner benefits financially in either scenario with
If the tenant does not pick up the option to purchase the house, you as the owner gets to keep the non-refundable option fee (collected upfront), additional rent paid already paid, and don’t forget the thousands of dollars saved while the tenant was paying for maintenance and repairs.
If the tenant does pick up the option to purchase the house, you as the owner are selling the house at a premium price while also not paying to maintain or repair it for the past few years. In addition, you saved on the commissions and fees it might have costed you to market the property and transact the sale in a traditional process.
Don’t Want to Sell Your House to Tenants?
If you don’t want to sell to your tenant and would rather sell your house in Los Angeles qucikly to cash out, talk to one of our highly seasoned professional home buyers at Fair Sale Homes today about your property, with no obligation. At Fair Sale Homes, we want you to know you achieved your goals and feel good about working with us long after the closing. That is why at Fair Sale Homes, we’ll compare the numbers of a traditional listing vs. the lease option method and even make you an offer to buy your property in Los Angeles directly, as-is, for cash. At Fair Sale Homes, we’re fully transparent and believe in educating our home sellers in Los Angeles, providing the detail of how each number in our calculations so you can make an educated decision about what works best to sell your Los Angeles house.
Ready to learn more about the win-win advantages for sellers of using a lease option to sell your house in Los Angeles? Call Fair Sale Homes at (626) 863-7006.