Residential Lease Options
Residential leasing is a part of almost every adult's life. Many will only participate in these leases as tenants, but others will be landlords at some stage. Either way, residential leases are ubiquitous, and understanding the various options available is key to getting the best value, whether you are the owner or the tenant.
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Term vs. Month-to-Month
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One of the defining features of a residential lease is its term. There are two basic schemes: term leases, which are for set periods of time (usually a year or more) and month-to-month leases.
Term leases give some safety to both the tenant and landlord. If a landlord wants to sell the property or finds a more lucrative replacement tenant, you cannot be evicted without grounds if you are on a term lease and the term is not up. On the other hand, you cannot leave without sufficient grounds either, at least not without being held liable for rent.
Different leases suit different people. A term lease may be very advantageous for one person and a major liability for another. It is important to know which kind you are signing.
Rent Inclusions
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Be sure to specify which services come with the rental payments. A net lease is one in which the tenant not only leases the property but assumes the responsibilities of that property, such as insurance, taxes, utilities, and maintenance.
A full-service lease, on the other hand, is the opposite. Tenants under full-service agreements pay only a monthly fee to their landlord, who covers electricity, water, gas, and every other associated cost.
Residential leases are usually combinations of the two, with more services earning higher rent and fewer services earning lower rent. It is important to note that these costs do not disappear. If you are a tenant who signs a net lease, you are not necessarily out any money, but only sending some of it to other creditors besides the landlord.. For landlords, while a net lease does keep your costs down, rent needs to be reduced accordingly.
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Purchase Option
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A purchase option is a lease in which the tenant pays higher-than-usual monthly rents in exchange for the option to purchase the property at the end of the lease term. This can be a good option for a tenant who wants to own a home but does not have the down payment or good enough credit immediately available.
For a tenant, purchase options have the major disadvantage of possibly wasting a lot of money. Theoretically, if you spend an extra $100 a month for five years in inflated rent for a purchase option, then fail to exercise it, you have wasted $6,000 That money could have earned interest over the five years and possibly gone toward a down payment on another property.
Purchase options do not really offer any major disadvantages to landlords. There is the fact that landlords agree not to sell for a certain amount of time, but in exchange for this, they have either a guaranteed buyer or a lot of extra cash accumulated over the period of the purchase option.
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References
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