The exit strategy you use to sell your house can make all the difference in earning the highest possible returns on your 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. At the end of the agreement, typically one to three years, they can exercise the option to buy the home or walk away, and you keep the initial option fee that you collect upfront as a down.
Much like having tenants, you’ll be renting out your 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 Wisconsin.
Asking Price
One of the primary advantages of using a lease option to sell your house in Wisconsin is the ability to set the sales price at the outset. This is particularly beneficial in a fluctuating market, as you can factor in expected appreciation over the term of the lease option, typically one to three years. For instance, if the current market value of your property is $300,000, you might set the future sales price at $320,000 to account for potential market growth. While this strategy does carry some risk—such as unexpected market downturns—it provides a clear financial roadmap. In my experience, having facilitated numerous lease option deals, this approach often results in higher returns compared to traditional sales.
Option Fee
Using a lease option to sell your house in Wisconsin allows you to collect an upfront option fee, which generally ranges from one to five percent of the sales price. In some cases, this fee can be as high as twenty percent, depending on the property’s value and the terms of the agreement. For example, with the national median listing price for active listings around $450,000 as of May 2022, a 5 percent option fee would equate to $22,500. This fee, typically non-refundable, is credited towards the purchase price if the tenant exercises their option to buy. My extensive experience in the Wisconsin real estate market has shown that setting an appropriate option fee is crucial for securing committed tenants and ensuring financial stability. Properties with higher option fees tend to attract more serious and financially capable tenants, reducing the likelihood of defaults.
Tenants Maintain Your Property
One significant benefit of using a lease option to sell your house in Wisconsin is that it transfers most maintenance responsibilities to the tenant. Although you retain ownership and are liable for property taxes and insurance, the tenant assumes the day-to-day upkeep and minor repairs. This arrangement incentivizes the tenant to take better care of the property, as they view it as their future home. This not only ensures the property remains in good condition but also provides substantial savings for the property owner.
Above Market Rent
Utilizing a lease option to sell your house in Wisconsin enables you to secure above-market rental income through a rent premium. This premium, which is an additional amount on top of the regular rent, serves as a credit towards the tenant’s future down payment. For instance, if the market rent is $1,500 per month, you might charge $1,700, with the extra $200 being the rent premium. This arrangement not only boosts your monthly income but also enhances the tenant’s commitment to purchasing the property. Should the tenant choose to exercise their option, the accumulated rent premium is deducted from the final sales price. However, if the tenant decides not to buy, you retain all premium payments, providing a significant financial benefit.
Talk to one of our highly seasoned professional home buyers at Northwoods Property Resources today about your property, with no obligation. At Northwoods Property Resources, we want you to know you made the best deal and feel good about working with us long after the closing. That is why at Northwoods Property Resources, we’ll compare the numbers of a traditional listing vs. the lease option method and even make you an offer to buy your property directly, as-is, for cash. At Northwoods Property Resources, we’re fully transparent, providing the detail of how each number in our calculations so you can make an educated decision about what works best to sell your Wisconsin house.
Ready to learn more about the win-win advantages for sellers of using a lease option to sell your house in Wisconsin? Call Northwoods Property Resources at (920) 851-9727.