Rent credit

Yes, good question. Just bear in mind that you can structure lease option is so many ways, so it is hard to know how they are doing this.

Probably the property would only rent for $200 pw normally. So they want to charge an extra $190 in rent, of which they will give you back $130 IF (note big IF), you buy the property off them. With LOs I think there is less chance that the tenant will eventually buy from you (compared to wraps). Since it is only a lease, tenants would be more inclined to walk away for various minor reasons.

If they walk away, then the owner would have collected an extra $130 pw in rent which they would get to keep.

Even if the too up the option in say 2 years time, the property may be worth $240,000, but they can get it for $230,000 less $13,520 rent credit = $216,000.

So the owner may have made $16,000 on the gain, and an extra $19,760 more in rent than they normally would have (ie $190 x 52 x 2).

You also don’t know the details, the strike price could be increasing annually in line with the CPI, and/or the tenants rent could be increasing as well. In addition they are probably getting the tenant to pay all rates, insurance, repairs etc saving them another $2000 per year.

Terryw
Discover Home Loans
North Sydney
[email protected]